GPGI Aktie

Good day and thank you for standing by. Welcome to the GPGI, Inc. First Quarter 2026 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded.

I would now like to hand the conference over to your speaker today, Dave Marshall, Chief Legal Counsel. Please go ahead.

Thanks, Ann. Good morning and welcome to GPGI's conference call where we'll review GPGI's first quarter 2026 financial results. With me on the call today are the business leaders from GPGI, Resolute Holdings, CompoSecure and Husky. We'll begin with prepared remarks and then open the call for Q&A. During the call, we'll make statements regarding our business that may be considered forward-looking, including statements regarding our growth strategy, customer demand, macroeconomic factors, implementation of the Resolute Operating System and our guidance for 2026 as well as other statements regarding our plans and prospects.

For a discussion of material risks and other important factors that could affect our actual results, please refer to the information in our reports filed with the SEC, which are available on the Investor Relations section of our website and on the SEC's website at sec.gov. As a reminder regarding the company's accounting. On February 28, 2025, GPGI completed the spin-off of Resolute Holdings Management, Inc. and our wholly owned subsidiary GPGI Holdings entered into a management agreement with Resolute Holdings.

As a result, the results of operations of GPGI Holdings and the operating companies which are subsidiaries, including CompoSecure and Husky, are not consolidated in the financial statements of GPGI and are instead accounted for under the equity method of accounting. For more information about our financial presentation, please see our SEC filings, including our quarterly report on Form 10-Q to be filed later today. In the earnings release we issued earlier today and in the discussion on today's call, we also present non-GAAP financial measures to help investors better understand our operating performance.

The company believes these non-GAAP financial measures provide useful information to management and investors regarding certain financial and business trends impacting the company's financial condition and results of operations. These non-GAAP financial measures should not be considered as an alternative to performance measures derived in accordance with U.S. GAAP and may be different from similarly titled non-GAAP measures used by other companies. A reconciliation of GAAP to non-GAAP measures is available in our press release and earnings presentation available on the IR section of our website.

With that, I'll turn the call over to Executive Chairman, Dave Cote.

Well, we have a tale of 2 cities. CompoSecure is performing better than our expectations reflecting just excellent implementation of the Resolute operating system for both growth and operations. Husky unfortunately has encountered unanticipated market headwinds because of oil market volatility and tariffs. This has caused customers to delay accepting orders that normally would have been expected to ship in the quarter while also reducing new orders. Well, you'll likely ask what changed.

Since I spoke to you on our March 12 fourth quarter earnings call, we saw a significant and surprising increase in customers taking a wait-and-see approach in response to those changing macro conditions. At the time of the call, February year-to-date orders were up approximately 27% versus prior year and the pipeline was up approximately 6% year-over-year. The amount of book and ship required to make the quarter was not unusual given history. And in the subsequent 2.5 weeks, several customers would not finalize their orders for shipment, we could not ship to a couple of countries and customers delayed placing an official order.

This trend continues today. We can't predict when it will end so we have provided a wider revised guidance range. In anticipation of lower sales, we've taken various actions on expenses to mitigate some of the impact of those lower sales. At the same time we're seeing order delays, we saw the pipeline grow approximately 4% over last year in the first quarter and up 7% year-over-year through April. So there are reasons for optimism that this will not be a long-lived problem. Consistent with this, we're seeing the 12-month pipeline up while the 3-month pipeline is down. Husky leadership is aggressively tackling ROS implementation for both growth and operations.

The investment thesis is very much intact with their great position in a good industry. Now I'm very unhappy to be sharing a different result today than I expected when I talked to you on March 12. While certainly disappointing in the short term, I can still say with confidence that the prospects for GPGI performance are quite rewarding. CompoSecure is on a roll and the new leadership has significantly energized that team and is improving the culture. The commercial prospects for growth are better than ever and ROS implementation and operations is showing significant gains. The prospects for this business are terrific and they're apparent today.

Compo also benefits from being more than a year ahead of Husky in ROS implementation. Husky prospects are also excellent. It doesn't show right now because of the market headwinds, but it is real. We continue to fund R&D expansion because it will greatly benefit the business' future. Consistent with our underwriting thesis, we can already see that ROS will also have a profound impact on our Husky business. With Rob's leadership, they are aggressively implementing ROS and driving the cultural change necessary for success.

We will navigate the market headwinds, implement ROS, continue increasing R&D and commercial excellence and become a significantly stronger business as we exit the year. I'm also pleased to say that Kevin Moriarty, a current GPGI Board member and deeply experienced finance leader, has stepped in to be Husky's acting CFO. This is yet another benefit of having a Board of superb operators. I've worked closely with Kevin in the past and he has a tremendous reputation as an operating CFO. We are actively evaluating a long list of candidates for the full-time role.

But in Kevin, we have a proven leader who brings a steady hand to Husky and I know we'll benefit from his financial and operating capabilities. I wish we could have seen the Husky market issues sooner than we did of course. I have not looked forward to today. That being said, nothing has changed concerning GPGI and the prospects for both businesses. I'm personally energized by the progress I'm seeing in both businesses. The cultural change is well on its way at Compo and the cultural change needed at Husky is being accelerated in dealing with these unfortunate market headwinds.

We can't predict today how long the headwinds will continue so we'll be cautious in our 2026 outlook. That though shouldn't take away from what both businesses can accomplish given they both have a great position in a good industry. I can promise you GPGI has my full attention. You all know my family and I have a lot of our own money involved here so I want to see GPGI perform extraordinarily well as much as all of you do. We will get through this just like we have in the past. This is an unfortunate blip, nothing more. We're excited about the path GPGI is on and what it will become.

So with that, I'll now turn it over to Tom Knott, our Chief Investment Officer, to review our financial performance.

Thank you, Dave. Going to Slide 4. GPGI delivered pro forma adjusted net sales of $421.2 million, up approximately 3% from the prior year; pro forma adjusted EBITDA of $82.1 million, down approximately 16% from the prior year; and pro forma adjusted EBITDA margins of 19.5%, down approximately 430 basis points from the prior year. As Dave mentioned, these results reflect record sales performance at CompoSecure offset by market-related underperformance at Husky. Given Husky's size relative to CompoSecure, this macro-driven delay in demand at Husky is more than offsetting excellent performance at CompoSecure.

Starting with CompoSecure. We delivered a record quarter as strategic investments in the sales force and enhanced focus on commercial excellence are driving strong organic growth supported by ROS in the factory. ROS initiatives have led to a step change in manufacturing yields and operational efficiencies throughout the production process, which were the primary drivers of adjusted EBITDA margins expanding approximately 300 basis points in the quarter.

Graham and Mary will go into more detail. But I would just highlight that CompoSecure is now 18 months of implementing the Resolute Operating System and we are pleased with the cultural and operational intensity taking hold at the company today. We expect CompoSecure to continue its strong trajectory of organic sales growth and improved profitability through the remainder of 2026.

Turning to Husky. Rob and Kevin will discuss our performance in the quarter and our outlook, but I will reiterate Dave's comments in noting that customer demand for Husky's products deteriorated rapidly at the end of March in a way that surprised us. This change more than offset the strong pipeline and order book we saw developing through the first 2 months of the year as customers aggressively shifted to a wait-and-see posture as resin prices spiked. While we expect the business to rebound when uncertainty subsides, this change in near-term demand has led us to revise our outlook for GPGI.

Turning to Slide 5. You have heard us in the past discuss the complicated accounting we are required to use. Given the transaction this quarter on top of that existing accounting complexity, Slide 5 shows a simplified walk to pro forma adjusted EBITDA. The full reconciliation appears in the appendix. As previously announced, we refinanced our debt concurrent with the transaction closing, extending maturities and materially reducing our interest burden. This is the first major component. Transaction expenses were in line with expectations and were paid through closing.

These transaction expenses taken together represent over $200 million of onetime GAAP expenses, which will not recur going forward. Net interest expense for the quarter reflects stub period interest, deferred financing cost and the interest on the new debt. Other key items include purchase price intangibles amortization, ordinary course income tax provision, noncash TRA liability remeasurement, stock-based compensation and foreign exchange impacts.

Moving to Slide 6. We're providing more details this quarter than normal to give a full picture of what we were seeing at Husky when we last spoke to you on March 12 and how things changed through the end of the quarter. Pipeline orders and backlog at Husky were trending favorably through February with positive commercial activity giving us confidence in our full year guidance for both Husky and GPGI. This momentum turned quickly late in the quarter. Orders fell 16% year-over-year to the end of March as resin prices spiked and customers delayed accepting shipments and placing orders.

Backlog followed a similar pattern in 1Q. We saw an accelerated recovery through February following a softer January, but the negative trend accelerated in the middle of March with simultaneously decline in order activity. Despite all of this, our pipelines remain strong growing 4% year-over-year for the first quarter and ending April up 7% year-over-year. Even with this healthy pipeline growth, we continue to see slower conversion rates as customers defer some purchase orders in the current environment.

Turning to Slide 7. The underlying demand drivers for our products namely nonalcoholic beverage demand remains resilient. This supports the healthy and expanding pipeline we've discussed even though near-term orders are volatile. While macro conditions have introduced significant ambiguity that is influencing near-term customer purchasing behavior, the core fundamentals of the market that Husky serves remain intact. Even though oil market volatility and its impact on resin prices is impacting customer behavior today, the volatility is also reinforcing areas where Husky products are well differentiated.

As resin prices rise, the value of our systems become increasingly compelling for customers because our equipment delivers industry-leading throughput, superior cycle times, higher preform consistency, greater uptime and lower energy consumption. All of this enables us to offer customers a 15% to 20% lower total cost of ownership versus competitive offerings. Additionally, as the price differential between virgin and recycled resin gets smaller, customers are increasingly evaluating RPET as a feedstock alternative to virgin resin.

Husky is the preeminent manufacturer of recycled PET systems, which will result in additional opportunities for new equipment sales and retrofit upgrades if customers shift to more sustainable feedstocks as an alternative to now expensive virgin resin. So while the current uncertainty is causing some customers to delay near-term purchasing decisions, we remain confident that the underlying demand driver, particularly consumption of bottled water, remains strong and that this period will drive customers to focus more on productivity, sustainability and system efficiency; all areas where Husky excels. I want to also take a moment to explain how we're responding to this challenging market environment at Husky.

On the cost side, we are in the process of implementing targeted furloughs across jurisdictions to reduce direct labor cost without impacting our industrial base or impairing our ability to respond to the rebound in demand. We are aggressively managing indirect spend and making necessary changes to be more efficient while also working towards a full return to office to maximize collaboration and increase cross-functional accountability across sales, finance and operations. On the commercial side, we are reinvigorating our sales force under new leadership thus commercial excellence is also a key strategic priority.

Husky is a little more than a year behind CompoSecure on the implementation of ROS. And while the market backdrop for our customers has changed meaningfully in a short period of time, we remain focused on doing the right things to position the business to achieve its potential. This includes making the necessary investments to accelerate innovation and long-term organic growth through aggressive expansion of the R&D organization and an unrelenting focus on ROS implementation. These critical initiatives are not stopping despite the market volatility we are facing because they will position the business to benefit from the rebound in demand and for the future more broadly.

With that, I will turn the call over to Rob Domodossola, the CEO of Husky.

Thanks, Tom. Going to Slide 8, I want to begin at the most fundamental level of what we do. Husky produces systems that make a precursor to nondiscretionary items, primarily water bottles. Demand for these products is durable with long established history of through-the-cycle growth in periods of macroeconomic volatility. The current period of volatility is no different. The demand for nonalcoholic beverages continues to expand around the world. Our customers are continuing to operate these high essential systems every day to meet this demand and that will continue.

While the current demand shock driven by steep increases in oil and resin prices has made customers delay normal purchasing behavior, the fundamental drivers of demand for our products remain solidly intact. Specifically, we currently have an installed base of 13,500 systems that are primarily used to produce nondiscretionary products. This installed base is embedded in our customers' operations and drives a large and growing aftermarket revenue stream across parts, tooling and services.

The installed base is globally diverse across developed and emerging markets and new systems have a higher content than legacy ones. Roughly 35% of our revenue is tied to new system sales, which is currently being impacted most significantly by the demand shock as customers pause large capital investments while 65% of our revenue is tied to recurring revenue. Although current market dynamics are causing near-term demand deferrals, the mission-critical nature of our products and consistent underlying demand drivers in the markets we serve gives us the confidence in a return to normalized order patterns.

Adding to our confidence, Husky is well positioned because our system delivers the lowest total cost of ownership for customers through faster cycle times, higher quality, lower energy use and maximum uptime. As higher oil and resin costs persist; our lightweight solutions, resin efficiency and system productivity enhanced by our connected Advantage+Elite remote monitoring further differentiates the value proposition of Husky's equipment relative to competitors. Taken together, we remain very focused on delivering on what matters most to our customers; uptime, output and durability at the lowest total cost.

Turning to our results. We delivered pro forma adjusted net sales of $29.8 million and pro forma adjusted EBITDA of $38.2 million, down 5% and 40% year-over-year, respectively. As Dave and Tom mentioned, the Middle East conflict altered customers' purchasing behavior nearly overnight in mid-March as supply disruptions drove sharp increases in virgin PET prices, up approximately 46% in March and April. These higher input costs combined with tighter supply and increased financing costs have weighed on near-term demand as Dave and Tom described. We view these dynamics as cyclical rather than structural.

In fact elevated material and operating costs tend to reinforce demand for efficiency, lightweighting and system level performance; all areas where Husky is highly differentiated and we've seen this pattern before. When geopolitical tensions ease and input costs stabilize, deferred investments tend to rebound and they rebound sharply. Importantly, the end markets we serve are tied to essential customer needs, which has historically proven resilient across cycles. Operationally, as Dave and Tom mentioned, we are in the early stages of implementing the Resolute Operating System and our focus is now entirely on disciplined execution.

ROS is fundamentally changing the way we operate and these changes matter even more in times like these. A key initiative we are implementing includes the integrated sales, inventory and operations or SIOP planning to improve job sequencing, manufacturing output and to reduce waste. We are also managing indirect spend and enhanced enterprise cost discipline across our procurement team. And of course AI will be an accelerator to ROS as we identify bottlenecks and improve lead times. ROS is critical to our long-term success and we are using it every day to drive measurable inputs; improvements to growth, operations and financial performance.

While the first quarter was disappointing, we know that fundamental SIOP planning efforts underway to establish a high performance culture and invest for the future are the right steps and are improving the business. Husky operates in essential categories. As macro pressures ease, we expect to see a rebound in deferred investment consistent with past cycles. Now turning to Slide 9. Given the breadth of our business, I want to cover what we're seeing in individual product lines and key geographies starting with our product lines.

Specifically in systems, orders are being deferred to the resin price volatility, tariff-related uncertainty and elevated financing costs. We expect the weakness we saw in the first quarter to continue through the year if the market headwinds persist. For aftermarket tooling, orders at the end of last year were lower due to customer uncertainty related to tariffs, which weighed on Q1 2026 sales. However, we expect this segment to return to growth in the second half as customers invest in tooling for the existing installed base while deferring the purchases of new equipment.

With respect to hot runners and controllers, we saw strong revenue growth across most regions in the first quarter, but continued market ambiguity is weighing on the order outlook in the near term. Lastly, for aftermarket parts and services, market ambiguity and tariff noise impacted demand at the end of Q1, which is expected to persist in Q2, but we expect to return to growth in the second half as customers increasingly prioritize productivity.

In our key geographies, starting in North America, we see a pause in demand for PET systems, partly offset by growth in tooling, spare parts and services. We believe North American market is close to trough levels and represents a market within our oldest installed base.

Shifting to Europe, we're seeing growth in aftermarket tooling driven by lightweighting and sustainability mandates that support further shifts to rPET adoption. For the Middle East and Africa, we see strong consumption-driven growth in PET systems and growth in hot runners for medical applications, offset by near-term geopolitical disruptions.

Turning to LatAm. Inflationary pressures and the steep tax on sugar-sweetened bottled beverages in Mexico are driving near-term softness in PT systems. While aftermarket tooling continues to grow, given shift towards lightweighting and package optimization.

Lastly, in Asia Pacific, we continue to see consumption-driven growth in PET systems and demand for hot runners tied to food and packaging and medical applications.

I will now turn it over to our acting CFO, Kevin Moriarty, to review our financial performance in more detail.

Thanks, Rob. Let's turn to our financial performance on Slide 10. Given the number of moving parts, let me level set where we landed for the quarter and our path forward. As a reminder, the first quarter is seasonally the smallest for Husky with the second half of the year typically much stronger than the first. Against this backdrop, Husky faced significant macroeconomic headwinds that weighed on both growth and profitability.

We reported pro forma adjusted net sales of $290.8 million, down 5% compared to the prior year as declines in new system sales and tooling offset strong growth in spare parts, hot runners and controllers. Pro forma adjusted EBITDA decreased 40% to $38.2 million, driven primarily by lower revenue and resulting under-absorbed labor and continued investments in R&D and front-end sales capabilities to support future growth. In aggregate, these factors translated to an approximately 770 basis point erosion in pro forma adjusted EBITDA margin to 13.2%.

As Dave, Tom and Rob all mentioned, we had over $20 million in revenue that got pushed out at the very end of the quarter. This included approximately $6 million tied to customer delays in taking deliveries, approximately $5 million tied to shipment and logistical delays tied to the Middle East conflict and approximately $4 million tied to delays in customer payments. Combined with the growth investments being made, this quantum of deferred revenue exacerbated margin degradation in the seasonally smallest quarter of the year as we carried excess labor costs relative to demand.

Consistent with historical first half and second half seasonality, we expect margins to expand in the second quarter and continue improving sequentially throughout the year, driven by improved fixed cost absorption in the seasonally stronger second half, the impact of ongoing cost actions and acceleration operational efficiencies from ROS-led initiatives. These initiatives are central to our thesis of driving sustained margin expansion and bolstering long-term profitability at Husky.

On the tariff front, after the Supreme Court invalidated IEEPA tariffs in February, the U.S. implemented modified Section 232 tariffs on April 6, 2026. While continued tariff policy pivot add uncertainty to when customers place their orders, we do not expect them to have a material impact on our results. The U.S. market represents less than 27% of our total sales, which helps moderate our overall exposure. Of this, roughly 40% of the revenue relates to systems and tooling shipped into the U.S. that is subject to a 15% tariff, 1/3 from imported aftermarket parts that have tariffs declining from 50% to 25%, and the balance is primarily hot runners, parts and services that are locally produced or delivered and therefore, not impacted.

In addition, consistent with our standard terms and conditions, we have been successfully passing through tariff-related costs to customers since the third quarter of last year and will continue to do so. Finally, our Husky equipment qualifies under USMCA and remains exempt from the 3.1% U.S. import duty, further limiting our exposure. And we are not alone when it comes to tariffs. Industry demand in the U.S. has been negatively impacted for the last 2 years. The U.S. is an importer of PET systems and Husky's primary peers do not have domestic production capability. We believe our North American presence positions us favorably relative to international peers importing into the U.S., while this tariff regime remains in place, while also allowing us to capture the inevitable cyclical upturn.

With that, I will turn the call over to Graham Robinson, the CEO of CompoSecure.

Thank you, Kevin, and good morning, everyone. Going to Slide 11. We delivered an outstanding quarter at CompoSecure, continuing to build upon our commercial and operational momentum. We achieved record pro forma net sales of $130.4 million, up 26% year-over-year, underscoring both the effectiveness of our commercial execution and the robust demand for premium metal cards. We are seeing this strength translate into new program wins and accelerating issuer activity across leading fintechs and traditional financial institutions. We're also seeing growth in metal cards that have Arculus capabilities.

At the same time, the Resolute Operating System continues to have a deep and profound impact across the business. We are realizing meaningful improvements across all functional areas from sales performance to improved operations, which helped us deliver strong pro forma adjusted EBITDA of $47.6 million, up 37% compared to a year ago.

While we are encouraged by our progress, we remain highly focused on investing in our future, in line with our strategic and execution framework that includes 3 pillars of growth: one, accelerating organic growth; two, driving international expansion; and thirdly, increasing Arculus momentum.

In the first quarter, we saw several exciting customer programs go live, including the American Express Graphite business card, X Money from Elon Musk, the Robinhood Platinum card and Revolut Audi F1 card as well as Fold, [ Cast ], Kraken and MetaMask US, which provide crypto rewards and the optionality to pay with crypto.

These signature program wins reflect the breadth of demand for premium card solutions and our differentiated value proposition, combined with advanced design, engineering and manufacturing capabilities to reinforce our position as the partner of choice for issuers launching high-impact card programs.

Most recently, we strengthened our leadership team by appointing general managers to lead our Arculus and international businesses.

With that, I will turn it over to our CFO, Mary Holt, to review our financials in more detail.

Thank you, Graham. Let's turn to our financial performance on Slide 12. In the first quarter, CompoSecure delivered strong results across all key financial metrics, driven by continued demand strength and increasing impact of the Resolute operating system across the organization.

As Graham mentioned, adjusted net sales were $130.4 million, up 25.6% year-over-year, driven by robust demand from traditional banks and leading fintech customers. Adjusted EBITDA increased 36.8% to $47.6 million, reflecting both volume growth and meaningful operational efficiencies, which led to a 300 basis point improvement in adjusted EBITDA margin to 36.5%. Some of these productivity gains will continue to flow through to profitability, while some will be strategically reinvested to support sustained growth.

Overall, this performance highlights the operating leverage and tangible benefits we are realizing from the systematic deployment of the Resolute Operating System, including enhanced throughput and process innovation, which has led to higher and more consistent yields at the factory level.

I will now hand it back to Tom to review GPGI's revised guidance.

Thanks, Mary. Turning to Slide 13. We are introducing new guidance for 2Q '26 and revising our full year 2026 outlook to reflect the macro-driven headwinds facing Husky. For 2Q ' 26, we expect net sales between $425 million and $475 million, pro forma adjusted EBITDA between $105 million and $120 million and pro forma adjusted EBITDA margins between 24.7% and 25.3%. For FY '26, we now expect pro forma net sales between $1.95 billion and $2.1 billion, pro forma adjusted EBITDA between $550 million and $610 million and pro forma adjusted EBITDA margins between 28.2% and 29%.

Consistent with the historical trends in the seasonally lowest quarter for free cash flow and despite the market-related challenges we faced at Husky, we generated approximately $29 million of adjusted free cash flow similar to last year's level, which gives us further confidence in our revised full year estimate of between $275 million and $325 million in pro forma adjusted free cash flow. Finally, we anticipate ending the year with approximately 3x total leverage.

Our revised guidance reflects the impact of the market shock facing Husky, but we continue to view 2026 as a critical and foundational year of cultural change, ROS implementation and strategic seed planting at both businesses that will position us to deliver best-in-class top line growth, margin expansion and free cash flow generation across the GPGI platform. This remains our focus, and we are confident in the work underway at both businesses.

With that, I'll hand it back to Dave for some closing remarks.

Thanks, Tom. We've got 2 businesses in CompoSecure and Husky that hold great positions in good industries, both of which are becoming even stronger through the cultural transformations their teams are driving and the consistent deployment of the Resolute Operating System. You can see the results clearly now at CompoSecure. The market dislocation we're experiencing in Husky is making those improvements harder to see, but they are there. The culture and the business processes are getting better. We're committed to continuing the course, investing smartly for the future and the results of our efforts will become evident.

So with that, I'd like to open up the call for Q&A.

[Operator Instructions] Our first question comes from the line of Jacob Stephan with Lake Street Capital Markets.

I guess, first, I just kind of wanted to understand on the guidance a little bit better and make sure I have clarification on Slide 13, you have kind of 2 arrows pointing to the high end and the low end. So the low end represents Iran conflict being delayed with the Strait disrupted and the high end would be if the conflict is resolved. I guess if you could give a little bit better sense on like timing. Does the low end of the range, I guess, assume the conflict last for the remainder of the year? Or does the high end assume that this is over to borrow? Any kind of comments you can give there?

Yes. The way I would look at it is what we're trying to reflect is the impact of delays. So if the delays continue because the Iran conflict just keeps going, then those delays are going to cause us to come into the lower end of the range. To the extent that our customers let go of those delays and maybe even if the conflict is continuing, but they stop delaying because they need the aftermarket or they need the machines, then we'll end up towards the higher end of the range. So it's more a reflection of what do we think could happen on customer delays today driven by the Iran conflict and tariffs.

Okay. Got it. And then I guess just kind of continuing on the guidance factor. When you look at kind of the second half for adjusted EBITDA, I think it implies relatively higher adjusted EBITDA in the second half. I know Q4 is a strong quarter for Husky, but we're looking at kind of $450 million to $550 million of EBITDA in the back half versus the first half. So I guess any color there, especially when you kind of talk about the margins compressing on Husky a little bit?

Sure. This is Kevin. If you look at our first half, second half; seasonally, second half represents roughly 60% of our revenue base. And again, with the cost -- better cost absorption, vertical contribution margins improving as well as the cost actions, we feel that the second half will be stronger.

Okay. And then just lastly on CompoSecure the core business there. Wondering if you could touch on the, I guess, new card launch pipeline. Is that strong looking at the kind of the last 3 quarters of the year?

Yes. The pipeline continues to be quite strong. And we speak in a number of different dimensions. The programs that we have with our existing customers, those customers are also continuing to create and generate new programs also. And then lastly, we continue to penetrate a new customer base, both internationally and domestically and also with fintechs and with our traditional banks. So we are -- we continue to be quite optimistic about the strength of the pipeline that we have and what we're seeing going forward.

Our next question comes from the line of Tomo Sano with JPMorgan.

I'd like to ask about the Husky s margin declined by 770 basis Y-o-Y in the past quarters. So looking ahead to second quarter and remainder of the year, what specific factors or initiatives do you expect will drive the margin improvement towards your full year guidance? Could you qualify the key assumptions for margin recovery in the back half, please?

Sure. So as I alluded to, the first quarter is historically are some lower revenue number. So as we sequentially go through the year, revenue will grow, which has been our historical pattern, heavier weighted to the third and fourth quarters. So the variable part contribution margin we're expecting on that is going to sequentially improve the margin rate. We're driving the ROS initiatives internally, which we expect to provide some lift as well as we've commented on cost actions that we're taking. We institute some furloughs as well as some indirect cost actions that we're also expecting to provide some lift.

And a follow-up regarding leveraging the ROS to drive the margin improvement for Husky. Could you share some examples of the cultural changes and operational opportunities being executed to enhance resilience and profitability, please?

Sure. Maybe I'll start. It's Robert. One of the biggest things is what I mentioned, the SIOP process is really intended to level out the factories. It's hard to keep your costs under control if you have peaks and valleys. But with level loading of the factories, it's much easier to get the labor and material costs aligned with the volume that's coming out of the factories. So that's one of the biggest initiatives that we have right now. With reduced lead times, that also helps to level load the factories, not just making us more competitive, but more profitable as well.

We have a significant focus on supply chain procurement excellence that's helping with material cost reduction. And finally, on the commercial excellence side, our whole go-to-market approach, we are taking steps to have some very effective value propositions globally rolled out, especially with regards to our new product launches.

Thank you. And I'm currently showing no further questions at this time. This does conclude today's call. Thank you all for your participation. You may now disconnect.

Welcome, everybody, to kicking off the -- at least for my part of the session here, the 2026 JPMorgan Industrials Conference, new and improved from Washington, D.C. And we're starting off with a very special panel calling it a legends panel with Dave Cote, who you all know, has a storied career in and around the electrical and multi-industry -- electrical equipment and multi-industry world and most recently, Executive Chairman of GPGI, which we'll get into in a little bit as well as Tom Knott, who's the Chief Investment Officer of the company.

But I really wanted to kind of start this by taking a bit of a step back. And maybe, Dave, in this environment, if you think back to putting your operating hat back on as CEO of a multinational company with this kind of backdrop and what's most recently happened, what do you think is going through CEO's minds right now? Is this to the point where there start to be contingency plans put together? What do you think is happening in the boardroom these days with what's happening at least with the -- in the Middle East?

Yes, I would say it's tough for me to speak for other CEOs. And who knows that can be pretty varied what's going through their minds and what's in their industry. But I'm happy to share what's going through my mind. Sure.

Absolutely.

I actually think the economy is better than a lot of the media give it credit for. And there's always ups and downs, puts and takes. But I don't think the economy is all that bad. Depending on where Iran goes, I suppose you could end up with a recession at some point. But I don't see that thing going really badly. It could very well be that it goes on longer than we'd like, that it's not the quick resolution that we'd like. But I don't see it turning into a tragedy. There's always a probability that, that could happen or a possibility that could happen. I don't see it as especially probable. So I'm not that negative on the economy. I actually think things are not all that bad.

And when you -- you've been one of the few CEOs out there, at least that we've seen publicly that's gone from being an operator to an investor, more or less, I would say, in the last several years. I mean you're not running these companies.

Not exactly, but I'm not exactly casual either.

I can only imagine. But I guess what is -- talk about that transition and maybe how you view things, how you have to view things a little bit differently in the roles that you've taken on versus the more -- seem to be a lot more blocking and tackling at Honeywell, where there was a little more of a fix a job there, too. So maybe just a bit of a contrast and compare.

Yes, I would say, at Honeywell, I had to spend a lot more time doing it. And it was a much bigger company because we had $45 billion in sales, 135,000 employees, 100 countries. So I had to travel a lot, and I had to be out there a lot myself. So that was pretty time consuming. So I always said that you couldn't really understand what was happening at the top unless you had a really good understanding of what your people on the ground were doing and saying and thinking. And I oftentimes felt that it was important to get out there to tour a factory, meet with customers or the sales guys.

So they knew that I knew what they did was important. And there's a lot of messaging that goes on just by showing up. It's really surprising. It's also surprising how few CEOs actually do it. So I spent a lot of time doing that. And there's a lot of day-to-day to your point. Meetings are pretty much jampacked. You probably know about the blue book exercises that I used to do in the X days to make sure that I got time to think.

So the job is different now. Maybe talk about that for 1 second, delve into that for a couple of minutes, the exercise, how you kind of really -- how you looked at a portion of your time to make sure you were focusing on the things that had the most impact and the most value. Yes. I would say it's very easy when you get into a position of leadership to become a victim of your calendar, and everybody throws stuff on. And any of your people who are pretty bright are going to learn to get along with your secretary really well, your executive administrator so that they can get on your calendar when they need to by just schmoozing your EA a bit.

As a result of that, if you don't control your calendar, it ends up controlling you. And I'd say that happens to most leaders that I've run into. So there were a number of things that I would do. And by the way, I always thought Donald Rumsfeld, love him or hate him. I know he didn't make this one up, but this line, I always thought was terrific because beware of letting the urgent get in the way of the important. We all have a tendency to do that. We know this is a big thing we need to do. But oh, I got to make this call. I got to send -- finish my e-mail. I got to get the shipment out. I got to get the order and you get consumed by the day-to-day stuff.

So what I used to do at the beginning of every year is I'd go through my whole calendar and about 3 days a month, I'd put an X through it. And I would tell my EA, you're not allowed to schedule anything for that day. That is my day. I'm going to do whatever the hell I want that day, and I'll determine when I get there. Now some of those you lose because things do happen. And there are some days where the day before and next day, you find yourself with a series of 30-minute meetings just trying to get through everything. But as a result of that, you end up with a couple of days a month where you can do what you want. And I would do things like make surprise visits to factories or facilities where even [ Lowis ], my assistant didn't know I was going because I wanted to be very certain nobody knew I was showing up.

I might decide to go visit customers. And about 2 to 3 days a year, I would take what I call my blue book exercise day. And I called the blue book because I just had this little blue notebook that I happened to carry around with me. And I would force myself to just think. And I might have 3 or 4 pieces of paper that I might use in order to stimulate various thoughts. But I would just think and I would think about countries, economies, my people, businesses, industries I might want to be in, which for somebody like me, is almost painful to do because you want to be doing something, you're kind of consumed by the need to do something.

And to say, no, I'm just going to think. And as I make notes to myself, I'm going to follow up on them and pursue it. Well, it's really interesting what comes out of a lot of those days. Like for me, the whole Honeywell operating system came out of one of those days. the focus on number of leaders and saying that if I could control that, I could control the bureaucracy in the company. There's a number of things that came up just analyzing the portfolio to say what was time to let something go.

So there's a number of things that came out of that, but it's a tough thing for a leader to do because, again, you get so consumed by the day-to-day that it makes it tough to just sit and think and to think by yourself and not have 10 people around you helping you think and stimulating ideas. But I found that worked out -- that worked very well for me during the course of the 16 years at Honeywell.

And when you think about -- you're still obviously engaged, as you said, with Vertiv and you obviously -- you didn't really take a step back and play golf, sit by the pool after you retire from Honeywell. What do you see as this kind of the current generation of CEO, where have you seen maybe those that are better performing, those that haven't quite lived up to the expectation? What do you -- are there some common threads there that we as investors should be looking out for during those types of transitions? Because obviously, I mean publicly, Vertiv, you guys made a change there. So what were maybe some of the things we as investors should look out for during those transitions? Who are the most successful guys these days?

Yes. I would -- well, first of all, I'd like to see the standard distribution in everything. So even if you look at like the S&P 500 and CEO performance, there's a standard distribution to that also because just because you're an S&P 500 CEO, it doesn't mean you actually know what you're doing. So...

It's like the sell side.

I'm sorry -- we...

Tighter. Much tighter.

We know where you...

So at the end of the day, I mean, finding the right leader makes a lot of difference. And I'm a big believer that if you can get that great position in a good industry, hence, GPGI, and put the right kind of leader in place, the leader is going to generate the culture that you're looking for and culture matters a lot. So a big believer first, you got to have a great position in a good industry because that's the backdrop against which everything can happen. You get a really good leader in there. It makes all the difference in driving the culture and the results.

So what makes for a good leader? I wish I could discern that in an interview. And I've oftentimes said I'm okay as an interviewer, but it's not my particular strength. What I am good at is being able to, after 2 or 3 months, determine, okay, does somebody have it or not in the job. So I would say it's one of the good things I'd say that I kind of got is, I won't be diluted for very long. I'll try to work with somebody. But at the end of the day, if they're not driving change and not getting results -- early, and not one of these, hey, it's going to be great in 3 years, but it's going to be great in 3 years, and here's what you're going to see in 6 months because you're going to start to see it already.

Some might call that winning now, winning later. That's a lead for you, Steve.

Yes. We'll get to that, I guess.

But what you want to be able to do is somebody needs to be able to say it's not going to be great in 3 years and you're just going to look like hell for a long time, then it's going to be great. They've got to be able to show progress. And I often refer to them as inch stones. So you want these inch stones that show, here's how you're going to make it happen.

The other thing along those lines that I look for is somebody who starts to create that drumbeat of daily management. And you think about one of the foundations of like what we call the Resolute Operating System now, a lot of that is just daily management create that daily drumbeat so that whatever big initiatives you're driving, you don't check on it once a quarter. You're getting a sense every day that people are working on it, that they're driving and making that difference. But the thing I wish I could discern in an interview that I've been unable to, is a capacity to grow.

You take a look at Giordano Albertazzi, for example, now the CEO, very successful CEO of Vertiv. When Tom and I first met them because Tom was at Goldman Sachs, and we did the SPAC together that acquired Vertiv, I can remember us talking after we met with Gio in Europe, geez, I'm not sure this guy is going to make it. Gave him some early challenges and he made them. Then said, geez, let's try them in the Americas, and he did well. And then said, geez, maybe we had to take a chance on them for the big job, largely because the CEO who was there, quite honestly, wasn't getting the job done and refused to move to Columbus, even though we had a company in crisis at the time.

So I thought, well, Gio seems to be doing well. I'll take a chance on him. He's been just tremendous. And he has responded to coaching like nothing I've ever seen. As soon as like there was nobody above him so that it was just the two of us kind of talking about stuff and where things needed to go, he would grab a hold of it and make it happen in ways that just -- he'd make me feel great. It was like, okay, my kids won't listen to me, but at least Gio does. This is -- this is tremendously rewarding, and he would make things happen. And that ability to make things happen to truly make change now, not 6 months from now, not a year from now, but you actually start to see it soon. Man, that's the thing you want to look for.

I'm sure you guys are still relatively bullish on the Vertiv thesis. What do you think is still underestimated by investors about where that company is going, putting aside $8 billion in orders in the fourth quarter. What do you think is the most important thing that people continue to not appreciate?

Yes, I'd say the one thing I continue to underestimate about investors is their ability to panic. It's really something we're seeing at GPGI now. I just kind of shake my head. We went through the same thing at Vertiv. We still go through it periodically. Oh my God, it's a bubble. Oh my God, Amazon came up with something. Oh my God, there's a China thing. And it's like nobody thinks they just sell and the stock goes down and you look at it and say, okay, well, stupid, but their money, I guess, not much I can do about it. So that just surprises -- continues to surprise me about Vertiv is as well as it's doing right now, there'll be some blip in news at some point that will cause it panic and everybody starts to say, oh my God, it's a bubble, it's a bubble. I've been reading, it's a bubble, I've read it's a bubble. I 've heard it's a bubble, it could be a bubble. And before you know it, it's like the herd just scares itself. And I don't -- if there is a bubble, I think it's still a ways off before it gets pierced.

Well, people keep bringing up the DeepSeek moment. They say, well, what's the DeepSeek moment? And it's like the DeepSeek moment was just one gigantic buying opportunity in the end. It wasn't really a moment. It was the start of the inflection more or less.

Well, that's one -- I mean, I can remember reading the DeepSeek news and saying, this is good for us because this means that if it's less expensive, people are going to use more of it, and oh, it's going to be great. And then we started crashing and what -- does anybody connect dots? It's really surprising sometimes.

So maybe we get on to the new investment here and give you a chance to pitch a little bit around that. Just a little bit of background on what the thesis is and where you're going with it?

Well, when Tom and I first did Vertiv and Tom was the Goldman Sachs lead for them. He and I talked a lot about how if we looked in the private equity model, they -- most of them talked about how they had operating expertise, and that's how they differentiated themselves. But I said more than once, I never saw one that actually had it. I mean they might hire some CEOs from various places, many of which weren't all that successful, but they were advisers. I was an adviser at one point. I was kind of surprised at how little anybody listened to anything I had to say. It was kind of like being at home again.

And I thought, okay, well, I'm not sure how well this model works. And Tom had this interesting point about permanent capital, about how if you took a look at PE firms, they couldn't really invest in a good business for the long term. They were always kind of stuck having to think about exiting right away, which also concerned their operating practices because if something was going to take 3 or 4 years to get done, you probably weren't going to spend a lot of time doing it. So we talked about was there some way to marry a permanent capital with superb operating practices.

We actually -- after he left Goldman, we worked on a couple of things, a couple of ideas, which didn't work out. And then CompoSecure became available, and we heard about it through JPMorgan, just so make Ked happy over there. We heard about it from them and said, oh, this could be a way to inexpensively create a permanent capital vehicle that we could then use superb operating practices with the right kind of Board so that we've got something that would really be superb overall and fill a real niche in the market, which Tom can go into even better than I can in terms of how private equity is stuck today.

So we acquired majority interest in CompoSecure, started doing very well with it, made a lot of people who didn't deserve a lot of money. But at the end of the day, we started growing pretty well.

Can you [ expand ] on that?

They didn't, but they got it. And Tom and I started talking about, is there a way to create a management agreement here so that we have an asset management company that's aligned with it so that we can maintain a core of some expertise at Resolute Holdings, have an asset management company, and with GPGI, have basically no overhead. So there's no CEO, no CFO. There's nothing above it. As a way of being a significant attraction for people who are really good operators. And we started talking about it as, hey, this is a chance to do what the Wall Street Journal referred to as Honeywell 2.0. And you take a look at everything that we dealt with in Honeywell. So we beat the S&P 500 by about 2.5x over 16 years. Yet we did it by carrying 5 boat anchors through the process.

First one was we had really bad accounting practices and bad distribution -- distributor practices to close the quarter. We had a significantly underfunded pension plan, a defined benefit plan that I had to take care of. Asbestos liabilities, neither recognized nor dealt with; environmental liabilities neither recognized nor dealt with. And if you take a look at the original $22 billion in sales we started with, I sold off $8.5 billion of it because it didn't even come close to a great position in a good industry.

Here, we get to start with what we want. So thinking back to the acquisition profile that we had at Honeywell, where we had the 6 criteria. We always looked at great position, good industry, tech differentiation, organic and inorganic sales growth and margin expansion, we had that possibility here to start from scratch with the things that we wanted. And with the asset management company, we did get some multiple arbitrage out of the exact same earnings, but the foundation of all of it was GPGI as the currency and the vehicle.

You saw us put that into motion with Husky, and we were able to use our shares as a currency in addition to the cash that we generated as a way of acquiring Husky, which is going to turn out to be a very good business for us. And we'll be able to do it with others. So we're able to start with businesses we like. We have this growth day mentality that we use. It's the same thing that I did at Honeywell. We've got it at Vertiv. We're doing it at CompoSecure and at Husky, the monthly growth day, where we take strategy and make it a daily activity. So you start with businesses you like, put in leaders who truly are going to lead the businesses and establish the culture that you're looking for, put those growth days in place and GPGI is going to do very well.

Now Resolute only does well if GPGI does well. And I know there's always some questions about that one, but I'm not sure what I understand why there's a question. So we feel pretty bullish about where this is going. We're quite surprised by the reaction last week. I was talking with Kurt Martinson about it earlier. Shocked actually at the reaction last week when we posted our earnings, I thought it was going to go the other way around, which it will. So I'd say now is a buying opportunity.

I see this as a good time, Tom, for, I think, you to jump in to talk about why this is so appealing, especially for the PE guys, why it worked with Husky, et cetera.

Yes. So I'll first just say, I mean, I think GPGI, Dave and I have always said, the entire goal of all of this is how do we buy businesses with great positions in good industries, deploy the operating system into them consistently to drive above-market revenue, EBITDA, EPS and cash flow relative to the very best-in-class industrials. That is the point of the business. And I think the structure will lend itself to that because we've observed that some of the larger businesses that are diversified, they begin to run into problems when they lose focus on underlying businesses. They stop pushing the businesses to be all they can be and they start thinking incrementally.

Well, this structure where there's no corporate overhead at all, there's no CEO, CFO, allows us to focus exactly on each business. CEO and CFO of each business own that. They're responsible for going out and making the businesses be what they can be. I would also say we went to great lengths to put a significant amount of our own capital in. I think that's got more than $1 billion invested into GPGI. So we are the biggest individual investors in the company, and that was important to us. So that was the foundation of it. But why now? Why is this such a unique opportunity? And we've -- I've been trafficking and looking at businesses in private equity portfolios of real scale since 2018.

I mean I started looking at it when we launched Vertiv because we recognized back then the real areas that were challenging were businesses that private equity firms owned that were large enough to need to go public for an exit. And I think you've had an interesting dynamic develop over the last 20 years where for a long time, the fundraising capacity of private equity seemed to be boundless. They were raising bigger and bigger and bigger and bigger funds, and so they were buying bigger and bigger and bigger businesses, almost thinking that there would always be a bigger fund to buy it from them.

Well, that has now slowed or stopped. And you have businesses that are $300 million, $400 million, $500 million, $600 million, $1 billion of EBITDA, where there isn't a fund big enough to buy it. Or if there is, maybe it's one or two and the competition is not enough and you actually can go map multiples paid. If you look at businesses $50 million to $150 million of EBITDA, the multiples for the exact same business profile are 2x, 3x, 4x higher than when you get to $300 million, $400 million, $500 million. And that's because of a competitive dynamic that's a problem. You look at businesses that are private equity owned and they are employing 6x to 7x leverage. That does not work for a public listing. And so what you have is you have this big and growing list of very high-quality businesses, almost high quality in spite of being levered for a very long time and having to make operating trade-offs that don't make sense for those businesses. They're still good businesses.

But if you have to take that business public as a sponsor, which you're being forced to consider now because there aren't funds big enough to buy it, you cannot raise enough capital in an IPO to delever the business to an appropriate public company amount and not still own 80% or 90% of the stock. What does that create? It means if you take those businesses public, they're going to be zombie companies because you've got a forced seller for a very long time whose only incentive is to sell.

Why GPGI works so well is we have a good track record of identifying businesses that actually do have great positions in good industries. That is really important because you have to have a great position in the good industry to make the work around deploying the operating system be worth it. You've got to have a market structure in a position that allows you to capture the benefits of the proven operating system. But we can find great businesses that we really like. We can buy them at prices that perhaps are even lower than where the private equity firm has been marked or would otherwise sell them because we can deliver significantly more capital that provides GPGI, a return of capital, which is top of mind for every private equity fund in the world.

The investors are saying, give me my money back. Well, we can do that. We can delever the business to an appropriate level where it's public company, reasonable and appropriate. And then we can allow them to retain stake in an overall business that has other businesses that are great positions in good industries where their stake is not an overhang on the stock. So in the Husky transaction, none of our investors cared about what Platinum did with their shares because it was 19% of the business. They said, we actually like more liquidity in the stock. We think that's a good thing.

That compared to if they had gone public regular way and owned 80% or 90%, it's a totally different conversation. And so right now, we believe that there's a structural opportunity where there are not homes for businesses that are very high quality, that are of scale that have been private equity owned. We think we provide a really, really transformative solution, and we know we can deliver once we own them because we've got a proven operating system and a proven capital structure to go and do that.

And how wide is the diversity of opportunity on the acquisition front? I mean, I don't think -- I don't know the business well. It's covered by Reggie Smith at JPMorgan. He's the expert here. So if anybody is interested, give me a shout. The diversity of opportunity, I mean, these 2 businesses don't really look like they belong together. So you really have a wide birth, if you will, to find these assets.

Yes. The way that we've talked about it is it's going to be any industry or business where all of you as investors would look at it and say, yes, with the backgrounds they bring, that makes sense. So that's a pretty wide variety of things and allows us a pretty good breadth of opportunity when it comes to how do you find a great position in a good industry because it's aerospace, controls, it's not going to be automotive. Could be some chemicals, could be health care where there's manufacturing or services involved, any kind of service business. I think you'd have to look at it and say, with the backgrounds these guys bring, they've operated businesses in those areas, so that would make sense. So the big thing will be that credibility and then being able to show you that it's GPGI.

Yes. But you want to stay within a certain size, obviously, this is -- or not really?

No, we've looked at stuff in the $1.5 billion, $2 billion EBITDA range.

And again, there's a real structural problem if you're trying to take those businesses public as a private equity firm. Our view is we can sit down with any private equity owner for their best assets that they want to take public. And we think we can deliver a much better outcome while offering a lower price for the asset because it doesn't work well to have an 80% or 90% owner to then sell down over time. It just doesn't work.

And so a lower upfront price with more capital allows them to roll less but benefit more from a re-rating. And that's a powerful tool, and we think we can do it, and there's a lot of opportunities and they continue to grow because some of these really good businesses keep getting larger.

In terms -- sorry, in terms of proof of concept, if you take a look at the $2.1 billion in equity that we raised to do Husky, we did it in 3 weeks, and we didn't use a bank, no offence, Ked, but we didn't use a bank. We were able to do this on our own. And I think that's pretty challenging when it says the kind of interest there is out there in the model that we've created.

What -- how far would you stretch leverage for the right deal?

That's one where we're a little careful because at the end of the day, if you want a good public company, you got to have a good debt profile. So we felt comfortable enough at [ 3.5x ] and being able to bring it down. And we want to maintain fidelity with our bond investors in addition to our equity investors. So whatever we did do, we would construct in a way that maintained a sound debt profile.

But ultimately, the multiple that you're kind of targeting is really kind of the classical compounder, if you will. That's how you'd like to be viewed over the long term.

Honeywell 2.0. We -- keep it going.

Yes. Our view and why we're doing this is we want to deliver better than the best-in-class compounders organic growth, top line and earnings and cash flow. And we think we can do it because you're able to buy really good businesses that have as cyclical exposures, deploy the operating system into them. There's real benefit to that, and we think we can do it. And we're doing it here with these 2, and there's more out there that are available, and we'll -- we don't need them. We can be very disciplined, and we're going to be. We're going to find businesses we like that make sense for GPGI at the right time. If not, we'll just operate these 2, and we know we can compound this.

Now the obvious question that comes from that is, well, wait a minute, is that kind of building a conglomerate and isn't there an anti-conglomerate push right now? And I always say I found it kind of interesting that the world loves focusing on industrial conglomerates, but media conglomerates, financial conglomerates, those are okay. I don't quite understand why there's such a difference there. But either way, one of the things that we were able to say at Honeywell when confronted by the same question is, the argument from investors is, look, you can't pick the sectors. Let us pick the sectors. So break it up, then we can pick what sectors we want to be in.

My argument back on that always was, well, that's true as long as you can beat the S&P 500, which, as you probably know, a lot of investors don't, not to say that any of you in the room, but a number of investors can't. So if you have a company that can, now it has a reason to exist. So they're able to -- that company is able to make those kinds of decisions to trade-offs, where to invest, where to sell, where to buy a company. And I think our proof point at Honeywell was, again, we beat the S&P 500 by 2.5x over 16 years. And that's proven out to be pretty darn good. That's going to be where we're going with this, to Tom's point. You'll see us consistently beating the S&P 500 when it comes to the earnings and cash we generate because that's the reason for a conglomerate to exist.

And it's interesting because Honeywell was a lot of -- like you said, there were the 5 anchors and removing those 5 anchors were pretty big. Vertiv was definitely more of a growth story, and this seems like a pure-play growth story, if you will. This seems like it's something -- it's growthy. It's -- you're building the business.

We can pick what we want. Yes. I would say Vertiv had its share of problems, which have been -- I mean, there was at one point, I always said, okay, I'm going to devote about a day a month -- a week to this overall. And at one point, when we were going through the price troubles, it was more like 2 to 3 days a week to try to get it out of its trouble. So we had more than our share of issues there, but we've been able to resolve it. Here, we're starting with businesses that we really like that are not run poorly, but have a lot of upside to them and with good leaders right from the very beginning.

So Rob Domodossola that we now have in Husky; Graham Robinson, who a number of us knew from Honeywell is running CompoSecure. Our Board, by the way, if you were to look at our Board of GPGI, all people who have run stuff. We don't have a bunch of lawyers and academics. We've got people who have run stuff. They know how to operate a business.

And I think just the model separating the two, the focus on each business, like there is nowhere to hide, and we are maniacally focused on helping each business achieve what's possible. And that is a really unique structure. I think the private equity world has grown quite significantly doing that well. They have the manager in each business. This is permanent capital, lower leverage, true operating capability, daily liquidity for investors, and we think much better returns, and we're very excited about that.

Any questions out there? Maybe a chance to plug the book since you brought it up. And anything we didn't talk about that comes out of the book that you really want to highlight and tease people to go out and enjoy the [indiscernible]?

Oh, they should buy that [indiscernible]. If they want to know what we're doing, where we're going, read the book, and you'll -- because at Vertiv, they hand it out and just say, if you want to know what we're doing, just read this. It happened at CompoSecure also, it's started to happen at Husky. The book is relevant, except for the chapter on succession, you can -- but the other 9 chapters, feel free to read those. You'll find those pretty handy, pretty useful.

That's pretty tough. Thank you so much for making the effort to get in here from Atlanta. I know that was a little bit of a choppy one, but...

Quite a morning, yes.

Congrats on all the success, and thank you so much. Best of luck.

Thanks, guys.

Good day, and thank you for standing by. Welcome to the GPGI, Inc. Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note that today's conference is being recorded.

I would now like to hand the conference over to your speaker host for today, Sean Mansouri, Investor Relations for GPGI. Please go ahead.

Good morning, and welcome to GPGI's conference call today. where we will review GPGI's fourth quarter 2025 financial results. With me on the call are the business leaders from GPGI, Resolute Holdings, CompoSecure and Husky. We will begin with prepared remarks and then open the call for Q&A.

During the call, we will make statements related to our business that may be considered forward-looking, including statements about our growth strategy, customer demand, our ability to maintain existing and acquire new customers; implementation of the Resolute operating system and our guidance for 2026, as well as other statements regarding our plans and prospects.

For a discussion of material risks and other important factors that could affect our actual results, please refer to the information in our annual report on Form 10-K and other reports filed with the SEC which are available on the Investor Relations section of our website and on the SEC's website at sec.gov.

Please note that effective as of February 28, 2025, and the date of the spin-off of Resolute Holdings management and as a result of the management agreement between Resolute Holdings management and GPGI's fully owned subsidiary, GPGI Holdings LLC, the results of operations of GPGI Holdings and the operating companies, which are its subsidiaries are not consolidated in the financial statements of GPGI and instead are accounted for under the equity method ofaccounting. For more information about our financial presentation, please see our annual report on Form 10-K.

In the earnings release we issued earlier today, and in the discussion on today's call. We also present non-GAAP financial measures to help investors better understand our operating performance. The company believes these non-GAAP financial measures provide useful information to management and investors regarding certain financial and business trends impacting the company's financial condition and results of operations.

These non-GAAP financial measures should not be considered as an alternative to performance measures derived in accordance with U.S. GAAP and may be different from similarly titled non-GAAP measures used by other companies. A reconciliation of GAAP to non-GAAP measures is available in our press release and earnings presentation available on the IR section of our website. Thank you.

And with that, let me turn the call over to Executive Chairman, Dave Cote.

Good morning, everyone. Before we get into the fourth quarter and full year results, I want to begin with a more detailed overview of what we are building at GPGI to provide more context on the platform and our objectives going forward. Now this is going to be a longer introduction than you can expect in the future as we want to clearly articulate our strategy and structure on this first earnings call as GPGI.

There will also be longer presentations from each business for the same reason than you will see in the future. GPGI is a diversified multi-industry platform that was purpose-built to acquire and operate companies that hold great positions in good industries, representing the acronym behind our new name. Following the completion of our acquisition of Husky, GPGI now owns 2 high-quality, market-leading businesses with best-in-class financials and durable growth profiles. Importantly, we believe Compo and Husky have opportunities to benefit from the systematic deployment of the Resolute operating system, ROS. And that work is already underway at both businesses.

Our vision for the GPGI platform is to help Compo, Husky and businesses we may acquire in the future, achieve their full potential by combining GPGI's permanent capital base with the systematic deployment of the Resolute operating system and implementation of a high-performance culture. This idea to marry permanent capital with superior operating practices began years ago when Tom and I first partnered together and ultimately acquired Vertiv. With the creation of GPGI, we are now refining this approach and believe it represents a needed innovation in the marketplace that is well positioned today and for the future.

Going to Slide 5. We have our business leaders on the call today, and you will hear directly from both the Compo and Husky teams regarding their respective businesses. Before getting there, I want to highlight how we think about GPGI's long-term growth algorithm. Specifically, we're focused on delivering mid- to high single-digit annual organic growth, over 100 basis points of annual margin expansion through the deployment of ROS, double-digit plus annual EBITDA growth and 90% to 100% free cash flow conversion over time.

The plan is simple. We intend to grow GPGI's earnings and cash flow faster than the market to deliver superior durable through-the-cycle returns for our investors. That is the whole point of GPGI.

On Slide 6, which you have seen before, we outlined the relationship between GPGI and Resolute Holdings. They are intentionally inextricably linked. The success of Resolute Holdings is tied to the success of GPGI. We designed the structure to empower the leadership teams of each acquired business to operate with all the benefits of permanent capital but without the constraints that often come with a bureaucracy of typical public company corporate infrastructure.

This allows us to help with the efficient implementation of ROS M&A strategy and capital allocation without distracting leadership teams at each business. A final point. I've mentioned on previous calls how confusing the accounting we are required to use is. To keep it simple, you should evaluate GPGI's performance by looking at the core non-GAAP operating results, which includes the deduction from the management fee paid to Resolute. GPGI is the operating company.

Conversely, RHLD's results reflect that same management fee income less its own operating expenses. It is the asset management company. It really is pretty simple, entirely complexified by the accounting were required to use.

Moving to Slide 7. The value creation playbook at GPGI marries disciplined underwriting from a permanent capital base with operating excellence to drive superior performance. We do this by relentlessly implementing the Resolute operating system, developing a truly high-performance culture at each business and investing with discipline in assets that meet our tried and true 6 investment criteria. We have a structural advantage for acquisitions.

And on the right side, you can see it works. The Resolute operating system with a high-performance culture applied to businesses that have a great position in a good industry works quite effectively. The strategy is not new. It's one we have consistently deployed and delivered across multiple public companies over the years.

Turning to Slide 8, establishing a high-performance culture is central to the value creation process. A high-performance culture does not just happen. It involves people and process. It starts with everyone focusing on what is right for the customer. Every company talks about the customer, but few focus their entire culture on it. I will not go through each item on the page. It involves starting with the customer than aggressively setting expectations making strategy and people daily instead of annual activities, regularly measuring performance and providing candid and direct feedback.

These are the process pillars of how cultures begin to transform. These are the tools that help foster high-performance cultures and teams, which in turn are what ultimately deliver results. We are intentionally embedding these norms across GPGI and view a high-performance culture as foundational to maximizing the potential impact of ROS in each business.

When everyone across the business buys in, that's attitude, and fully applies these ROS principles to good businesses, that's aptitude. This is how we achieve performance and deliver results and at altitude. It is not just about a great attitude. You have to have something fundamentally strong to apply it to. Hence, the need for GPGI, great positions in good industries.

Moving to Slide 9. The Resolute operating system is our proprietary approach to operating businesses. It's an adaptation of the Toyota production system. It really comes down to 3 areas of focus: growing sales, controlling costs and generating the cash necessary for seat planning and delivering returns for investors.

Starting with growing sales. Our approach is centered around our customers, delivering end-to-end commercial excellence and continuing to innovate on new products and services that meet and exceed customer demand. This strategy is made possible by a capital structure that allows us to prioritize investments in R&D for new products and services and provide support to the go-to-market functions to appropriately cover the markets we serve.

On the cost side, we worked diligently to identify and implement robust reporting around fixed and variable costs to drive efficiencies and ensure our fixed costs stay flat or grow much slower than sales. The fall-through of the variable margin rates in our businesses is impressive. So being able to retire fixed cost growth relative to sales growth enables a huge amount of flexibility for us.

Taken together, we improved cash generation with greater profitability, which allows us to invest more back into the business to drive more innovation and growth, while concurrently being able to deliver returns for investors. The flywheel begins spinning when these investments drive growth that delivers increasing profit through necessary cost controls, which in turn enables more investment growth than profits.

This is the add of making the right decisions for each business today and for the long-term at the same time. Some might even call it winning now, winning later.

Shifting to Slide 10. I want to spend some time on how we think about implementing ROS in our underlying businesses. ROS is the operational cornerstone of every GPGI business, and it consists of 3 phases. We start with a period of seed planting where we laid the foundation for excellence. This represents the time immediately after we acquire a business where monthly growth days and deployment of our playbook of best practices across all functions begins.

The second phase is where we continue making strategic investments to catalyze growth and innovation, implement lean principles and firm up cultural change from top to bottom. The third phase is where everything comes together in a culture of continuous improvement powers the flywheel necessary for a long-term compounding.

The key is that ROS is not a one-and-done activity. It is a daily mindset for sustaining performance over time, and it's in every function. We are just beginning this journey with Husky, and while we are encouraged by our early efforts, there remains significant opportunity to continue the work underway at both Compo and Husky.

Starting on Slide 11 to demonstrate how an operating transformation begins. We have a case study compiled on CompoSecure's performance since we got involved. From the time we made our initial investment in the company, we deployed ROS to catalyze growth, control costs and make strategic investments in the business. Over the past 5 quarters, you can see these efforts are beginning to take hold and drive a phased inflection in financial performance.

We're pleased with this early progress at Compo, but also know there is a lot more to achieve there over time. However, the inflection in performance you've been able to see, both top and bottom line performance is what cultural transformation paired with the deployment of the operating system is designed to do. This is the same approach we are taking at Husky, and we know that deploying ROS consistently across each business, while helping to cultivate a high-performance culture is a winning formula. And one we will apply to all GPGI businesses.

With that, I'll turn it over to Tom Knott, our Chief Investment Officer, to review our investment philosophy.

Thanks, Dave. I want to begin this section about our investment philosophy by explaining how we think about acquisitions. Fundamentally, we view acquisitions as opportunities and are focused on using the same discipline that we have used in the past for every opportunity we evaluate in the future. Deals must make sense, both in terms of business quality and in terms of valuation.

We built GPGI to encourage the discipline, specifically because we have no deployment targets or timing pressure to acquire new businesses. We are very enthusiastic about the 2 businesses we currently own and believe in the opportunity to deliver strong organic top and bottom line performance with a continued focus on ROS implementation and cultural transformations underway at each company.

This is where we focus much of our day-to-day efforts and having good businesses with rich organic opportunities ahead is a great place from which to operate. While we are constantly evaluating potential investment opportunities for GPGI, we will only acquire additional platform businesses if they solidly meet our 6 investment criteria and if they can be acquired at a fair price.

Today, we do believe GPGI is uniquely positioned as a structurally advantaged acquirer of the increasing number of high-quality private businesses that need to access the public markets and that can benefit from our operating system. This universe consists of family-owned businesses, noncore divisions of public companies and a significantly growing number of businesses owned by private equity firms.

We are confident in our platform's ability to offer superior outcomes for each of these different types of businesses. but we see the largest opportunity today among private equity firms that need to monetize their investments to return capital to their investors. Specifically, we are confident that our platform can deliver transactions that result in a win-win for both GPGI and a selling private equity firm that is superior relative to a traditional IPO.

The list of large, high-quality private equity-owned businesses that need to reach the public market is growing, and as a result, our platform is well positioned as a unique solution. This paired with the excellent organic prospects for CompoSecure and Husky allows us to be selective as we evaluate potential businesses to add to the GPGI platform in the future.

Wrapping up my comments with Slide 13. I believe it is important to again review the 6 investment criteria we use to evaluate businesses. It is how we look at companies, and it's important to discuss so that investors and potential sellers know what is important to us.

As we have said before, we want GPGI to be an aspirational home for market-leading businesses, which must operate in a good industry, have a great position in that industry, differentiate with technology, can grow both organically and inorganically and have the potential for significant margin expansion.

This list is what we measure for each potential acquisition and it's one that we will remain consistent in applying. From Dave's time at Honeywell to my involvement with Myriam to our partnership on Vertiv, CompoSecure and now with Husky, this approach is proven and serves as a highly effective screen for selecting high-quality businesses that can generate superior investor returns.

With that, I will turn the call over to Graham Robinson, the CEO of CompoSecure.

Thank you, Tom. As announced in January, I recently joined as President and Chief Executive Officer of CompoSecure. In my short time here, it has become quickly evident that this is the most dynamic and compelling business that I have been involved with. The company has already proven its strategy with a differentiated value proposition, and we are now in a position to accelerate growth with disciplined execution. I am delighted to lead our expanding teams on this journey.

Turning to Slide 16. We delivered strong organic growth and profitability in the fourth quarter and for fiscal year 2025, driven by disciplined execution, operational focus, and the continued support from the Resolute team and the Board on our strategic initiatives. Mary Holt, our CFO, will go into more detail on the quarter later. But I would note Net sales increased to $462.1 million in fiscal year '25, up 9.9%. We also delivered strong operating performance as pro forma adjusted EBITDA increased to [indiscernible] million in fiscal year '25, up 23.5%.

As Tom mentioned, implementation of the revenue operating system at CompoSecure [indiscernible] real inflection in financial performance. With that, let me take a step back and talk about where CompoSecure sits in the market today for those who are new to [indiscernible]

[indiscernible] going to Slide 17. CompoSecure is the go premium entertainment cards with over 200 active made programs. We rent 9 of the top 10 U.S. additions, along with our growing rest of disruptive context. Our leadership position is reinforced by 1,000 design and utility patents and 25 years of technical expertise, we have built a unique, competitive mode that combines proprietary design, engineering and scaled manufacturing capabilities will enable us to deliver high-quality metal cards at scale. In 2025, we shipped more than 30 million cards to our customers.

Moving to Slide 18. Our business is much, much more than making the metal card. We deliver a tire value proposition to our customers. As a pioneer of metal cards, we uniquely understand evolving customer needs. -- and use that understanding to inform our customer-centric innovation, coupled with our advanced manufacturing capabilities and integrated authentication capabilities with -- we are a trusted partner for issuers as they launch their signature core programs.

Turning to Slide 19, where we speak about the industry. Our offerings are in mission-critical but low-cost component of the overall value proposition for payment card programs. Launching a metal card enhances brand loyalty and delivers accelerated returns through higher acquisition, customer acquisition, spending and retention, resulting in significant ROI for our customers.

Our products elevate our customers' position and deliver measurable financial impact by enriching their programs while driving differentiation and positioning their cards at top of wallet. Importantly, metal cars remain significantly underpenetrated at less than 1% of all cards ship globally. When combined with our expectation of low double-digit growth for the premium car segment globally, this creates a long runway for growth and continued share gains versus plastic cards.

On Slide 20, this brings me to the strength of our model and industry. We're seeing continued adoption of payment cards globally, increasing the total addressable base of cards in circulation. Additionally, the new users in international markets and the Fintech segment, are launching their first metal card programs and existing customers are expanding their programs through tiering to further drive improved customer acquisition spend and retention, which also needs to higher ASPs.

According to industry data, credit and debit card in circulation, including plastic cards, have grown at approximately 8% over the past 5 years. And CompoSecure is well positioned to further capture field within that expanding. All of this supports a durable recurring revenue model as new cards are introduced, reissued, refreshed and upgraded over term. In addition to our core offering, CompoSecure is extending its technology leadership through its Oculus platform a multifactor authentication and digital asset storage solution that embeds secure login technology directly into metal cards.

Instead of relying on passwords, which can be lost or compromised, [indiscernible] seamlessly integrates 3 secure elements. One, phone biometrics; two, a pin; and thirdly, a metal card. This makes it ideal for high-security applications like logging into financial accounts or safeguarding sensitive digital information.

While the platform was originally designed to protect digital assets its broader applications now include passwordless login, identity verification and transaction approvals, especially in environments where both security and simplicity are critical.

This represents a natural adjacency for CompoSecure. We are leveraging our expertise in secure physical products and trusted issuer relationships to expand into authentication use cases. In 2025, [indiscernible] continued to scale and is now a growing contributor to revenues and cash flows, reinforcing our belief that this platform can be a long-term value creator. So when you step back, we have a core metal card platform with structural growth tailwinds, and we are extending that platform into adjacent authentication opportunities through Arculus.

Going to Slide 22. While we often talk about new program wins, a significant portion of our growth is supported by the installed base of metal cards already in circulation. Approximately 75% of our revenue is recurring, driven by replacement and reissuer cycles.

Over the past 4 years, we have shipped approximately 123 million metal cards. That growing installed base creates a predictable stream of replacement volume over time. As metal cards in circulation continue to scale, this recurring component of our revenue base will grow alongside it. This is an important flywheel and structural [indiscernible] of our model, which provides strong visibility into our future growth.

On Slide 23. In addition to that recurring foundation, organic growth is also driven by continued innovation and customer wins. There is incredible innovation and engineering complexity behind our products. Our cards integrate secure elements near field communication capabilities and layered material construction, all of which require advanced manufacturing.

That technical differentiation is a key reason why we continue to secure high-profile customer wins. This includes recent wins with Wells Fargo Autograph, Bilt's re-launch of a tiered portfoliosn and Citi's American Airlines Centennial card among others, these recent wins underscore the strength of our customer relationships, the breadth of demand for differentiated premium car solution. and the value we deliver to use tissues.

With that overview, let me hand the call over to our CFO, Mary Holt, to review our financial results.

Good morning, everyone. Let's turn to our financial performance. In the fourth quarter, CompoSecure delivered non-GAAP net sales of $117.7 million up approximately 17% compared to prior year, reflecting strong domestic demand and continued momentum across our core customer base.

Non-GAAP gross margins in the fourth quarter reached 55.7%, up approximately 360 basis points from last year, as we continue to benefit from the implementation of the Resolute operating system which has led to increased discipline across manufacturing, sourcing and end-to-end execution.

Pro forma adjusted EBITDA for the quarter increased approximately 41% to $43 million, while pro forma adjusted EBITDA margin increased approximately 640 basis points to 36.5%. This performance highlights the operating leverage in our business and the continued benefits from driving operational efficiencies.

For full year 2025, CompoSecure once again delivered across the board. Non-GAAP net sales were up approximately 10% year-over-year to approximately $462 million. Non-GAAP gross margin improved approximately [ 20% ] and up 420 basis points to 56.3%, and pro forma adjusted EBITDA increased approximately 24% to $171 million, with pro forma adjusted EBITDA margins expanding more than 400 basis points to 36.9%.

Let me hand it back to Graham to close out the CompoSecure section.

Thank you, Mary. Looking ahead, I am very encouraged by where CompoSecure stands. Entering 2026, we see continued strength in our core metal card business, supported by a healthy pipeline. We also expect Arculus to remain an important growth range as adoption broadens across authentication and payment adjacent use cases.

Equally important, we see significant opportunities to continue improving execution and margins as the Resolute operating system becomes further embedded across the organization. Some of those gains will continue to flow through to profitability, and some will be strategically invested to support sustained growth.

In closing, CompoSecure has a strong position, a compelling value proposition and a proven ability to translate growth into cash flow and earnings. I am excited to lead this business into its next phase and deliver long-term value for investors.

I'll now pass the call back to Tom.

Thanks, Graham. Before we get to the Husky results, I'm excited to introduce Rob Domodossola as the new President and CEO of Husky. Rob brings a long and tremendously successful Husky career to the position and his background in technology, engineering, sales and marketing adds a lot to our increased growth focus.

Rob has 30 years of dedicated service to Husky, having joined in 1996 and most recently serving as the President of Systems and Tooling. Throughout his career, Rob has demonstrated exceptional leadership across multiple divisions, including President of Rigid Packaging, President of Medical and Specialty Packaging Systems and Vice President of Engineering and Business Development.

He is admired internally and externally for his relentless commitment to the customer, and we could not be more excited about working with him in this new role. Rob, over to you.

Tom, thanks for the kind words. I'm really excited and honored to serve as only the fourth CEO in Husky's 70-year history. What's company on Husky for the past 3 years is our passion for innovation with an 18- to 24-month cadence of new product launches that kept us in the lead.

Our deep customer intimacy, investments in our go-to-market approach that has strengthened our customer loyalty, while helping us diversify our customer base and our desire and capability to serve our customers anywhere in the world, 24/7, and now with the capital structure that Resolute brings and the Resolute operating system, which is essentially a playbook for commercial excellence, we can leverage these core competencies and develop new capabilities for growth. I'm really excited about Husky's prospects.

For those who are new to Husky, Slide from 6 captures who we are and white Husky is such an attractive addition to the GPGI platform. We certainly hold great positions in a good industry and are the global leader in highly engineered injection molding systems and related aftermarket services. Husky has a global recognized brand with a long-standing reputation for manufacturing best-in-class systems over 70 years.

We primarily serve attractive food, beverage and medical packaging end markets and have a large installed base with approximately 65% of our sales coming from reoccurring high-margin aftermarket parts and services.

Now if we turn to Slide 27. Husky has a leading competitive position derived from its mission-critical products and a long-standing track record that creates a durable competitive advantage. We have an installed base of approximately 13,500 total systems that drive high recurring revenues from aftermarket parts, tooling and services.

Our installed base is well distributed globally, and we benefit from growth in both developed as well as emerging markets. Husky is the global leader in PT markets across both new systems as well as aftermarket [Audio Gap]

[Operator Instructions]

Okay. Sorry about that. I'll continue here. Husky maintains its market leadership position because we have the premium product offering in our markets. We deliver our customers the lowest cost of ownership enabled by the fastest cycle times, the highest quality, the lowest energy consumption and the highest output in the industry.

Our customer base is large and diverse with no significant customer concentrations. And we have an excellent tension rate with customers who come back to us to purchase new systems year after year.

Now to help contextualize our business, Slide 28 shows how we deliver end-to-end solutions to customers. Given our legacy of innovation and close connectivity with customers, we clearly understand emerging customer needs and use this knowledge to develop customer-centric innovations with a proven product market fit.

We are a trusted partner to our customers and advise them on unpackaged design material selection, and we even designed their factories to noise throughput. Our advanced manufacturing capabilities across a global footprint gives us the ability to meet demand across markets and meet stringent customer tolerance at scale, while our 24/7 remote learning solutions help customers significantly increase their overall equipment performance to drive improved business outcomes.

Taken together, our offering support customers along every step of their product ownership journey.

Turning to Slide 29. We operate in a large and growing industry, characterized by a cyclical customer demand. The industry has supported strong growth for years, and we believe the fundamentals are firmly in place to continue that for a long time to come, especially when it comes to growing awareness of PET superior material properties.

It has a superior carbon footprint. It has regulatory push for plastic circularity and there's growing adoption for recycled plastics and packaging. Growth in PET beverage demand is the underlying secular trend driving market for Husky's equipment. It's hard to imagine the future without a lot more PET bottles as work continues to urbanize and demand for safe, affordable, convenient packaged beverage continues to grow.

Importantly, PET has demonstrated a consistent share gain over other substances. We tend -- we expect to continue. PET's peer to glass to aluminum and to paper with lower overall production costs, stronger performance characteristics and it's 100% recyclable over and over again from bottle to bottle.

Husky's certain systems are capable of processing up to 100% recycled PET, positioning the business to benefit from global regulatory initiatives that increasingly favor higher recycle content. Overall, Husky is well positioned to capitalize on favorable long-term demand drivers across its key end markets.

Moving to Slide 30. We A key differentiator for our business is our remote monitoring capability called [indiscernible] Elite. It's an internally developed technology that enables us to remotely monitor the health of our customers' equipment in real time, optimize system performance and proactively inform our customers of operational challenges or were in terror before any downtime happens.

Husky machines sit at the core of our customers' operations and typically runs close to 24/7 and with our highest output machines producing approximately 1 billion preforms per year, meaning any downtime or performance segregation can materially impact our customers' unit economics.

Advantage+Elite has -- Advantage+Elite increased uptime and overall performance of our customer systems and deliver significant value. This has resulted in increased adoption since we first launched it back in 2019. And we see tremendous white space as we look to connect the rest of our existing installed base. We expect these growth initiatives to accelerate service contract revenues, while also supporting incremental spare part sales through proactive identification of maintenance needs, which increases customers' uptime.

Going to Slide 31. Our global installed base and rising content per system drive high-margin reoccurring aftermarket revenue streams that underpins our organic growth. For each new system sale, we expect to generate about 2 to 3x the initial sale value in aftermarket products and services over the life cycle of the system.

While our equipment can run for over 20 years, and it does, and we generally view the economic life of a system being approximately 15 years. And with more than 50% of our installed base over 15 years old, we're excited by the favorable demand dynamics this creates for upcoming replacement cycles.

Our technology focus results in constant improvements, so machine today is significantly more productive than one say from 10 years ago. Importantly, this aftermarket revenue stream has demonstrated resilience across economic cycles and carries higher margins than new system sales. As the installed base continues to expand, increase a self-reinforcing flywheel that supports durable long-term aftermarket growth.

Now Slide 32 outlines our key organic growth drivers and how we plan to capture the significant white space ahead. We delineate growth opportunities by new markets and through capturing share within our existing installed base.

The 4 primary pillars of our growth include: one, expanding share in our core PET markets through stronger sales execution continued technology differentiation and asset renewal to support recycled PET regulatory requirements; two, by leveraging our brand and engineering capabilities to grow our install base beyond PET with new products, particularly across packaging systems, beverage closure systems and medical end markets; three, by capturing the full aftermarket opportunity with our own installed base and finally, by becoming the digital leader in our industry through Advantage+Elite.

We are already leveraging sales in Resolute tools from the Resolute operating system to execute against each 1 of these initiatives, deliver growth and drive collaboration across go-to-market, finance and operational functions. We remain excited about the opportunities ahead of us.

And with that, I'll turn it over to John Linker, Husky's CFO, to wrap up the Husky section.

Thanks, Rob. Closing out with Slide 33, we cover Husky's financial performance for the fourth quarter and full year 2025, noting that the business combination closed after the quarter end in January 2026. Net sales increased to $521 million in the fourth quarter, up over 6% from prior year, primarily from volume and also a small tailwind from FX.

Fourth quarter volume growth came primarily from China, India, Europe and Latin America, while North America and the Middle East were flat and Africa declined. Net sales increased to approximately $1.57 billion for full year 2025, up 5% from 2024, again, due to volume with a small tailwind from FX.

Full year 2025 volume growth was driven by strength in Europe, Latin America, the Middle East and India, while China declined due to a tough year-over-year comp. However, the momentum in sales growth was offset by margin compression in both the fourth quarter and full year 2025. Margins were adversely impacted by 3 primary drivers unique to 2025 that we have confidence will not recur going forward.

First, from a product mix standpoint, we delivered higher sales growth in new system sales versus aftermarket. This transient mix brought down blended margins in 2025, but it also means that we're seeing an acceleration in new systems demand, which grows the installed base and drives margin accretive aftermarket sales in future periods.

Second, we made strategic investments in sales force coverage, service contract labor and new product prototyping to support long-term value growth in future periods.

Lastly and most acutely in the fourth quarter, we faced variable cost inefficiencies in labor and overhead as we ramp the organization to deliver the record level of sales throughput. With respect to ongoing investments, particularly now as a GPGI company, we are focused on catalyzing sales growth, improving profitability through operational efficiencies and accelerating new product introductions.

All of these initiatives are being enabled by the significantly enhanced capital structure under GPGI and operating focus and expertise from Resolute paired with the long-standing culture of innovation at Husky that is no longer capital constrained. We are firmly in the early stages of implementing the Resolute operating systems, and we are encouraged by initial progress, and we're confident in our ability to return to margin expansion in 2026.

I'll now turn it back to Tom to discuss GPGI's guidance.

Thanks, John. Let's go to Slide 35, where we address our pro forma forward guidance for fiscal year '26. We are encouraged by the trends we see at both businesses and are introducing a guidance range for fiscal year '26 that represents this, while also accounting for the dynamic macroeconomic and geopolitical backdrop.

We currently expect non-GAAP net sales of approximately $2.18 billion to $2.23 billion, pro forma adjusted EBITDA of approximately $620 million to $650 million and pro forma adjusted free cash flow of approximately $325 million to $375 million. The midpoint figures represent 8.5% non-GAAP net sales growth approximately 17% adjusted EBITDA growth and approximately 29% adjusted EBITDA margins.

We expect continued momentum at both businesses in fiscal year '26. At CompoSecure, increasing adoption of metal payment cards and ongoing share gains are driving new program launches and expanding cards in circulation, creating meaningful opportunities with both new and existing customers.

At Husky, pipeline activity is building with continued strength expected in higher growth emerging markets alongside growth in North America supported by aftermarket performance and packaging systems demand. across both businesses, new product introduction, targeted investments and improved go-to-market execution are expected to catalyze growth.

On the margin side, we expect to drive margin expansion through organic sales growth cost savings through operational efficiencies and realizing fixed cost leverage. We are deploying the Resolute operating system and are investing in R&D, commercial excellence and operational improvements at both Husky and CompoSecure.

In terms of cadence through the year, we anticipate GPGI revenue growth and margin expansion to accelerate in the second half versus the first half, with growth in the first half anticipated to be mid-single digits year-over-year expanding to double-digit year-over-year growth in the second half.

Margins are expected to be relatively flat in the first half of the year, with margin declines at Husky in the first quarter. as key investments and in-flight operational improvement initiatives at Husky take time to be fully realized. These costs will offset anticipated margin expansion that CompoSecure early in fiscal year '26, but will contribute to margin expansion that is expected in the second half and the full year.

Concluding my comments on Slide 36, we provide a summary of our pro forma financial metrics for fiscal year '26 and the supplemental bridge for pro forma adjusted free cash flow. We are enthusiastic about the opportunities ahead for CompoSecure and Husky and view 2026 as a foundational year of cultural change ROS implementation and strategic seed planting that gives us confidence in delivering best-in-class top line growth, margin expansion and free cash flow generation.

With that, I'll hand the call back to Dave for some closing remarks.

Well, as I said at the beginning, the formation of GPGI establishes the foundation for a best-in-class diversified compounder that we believe can be a home for market-leading businesses and best-in-class operators. We have a proven value creation plan that implements our operating system to catalyze organic growth, improve margins.

It builds a high-performance culture and brings rigorous discipline around capital allocation to pursue accretive inorganic growth. We are operating from a position of strength. The opportunity ahead is substantial, and we're focused on building upon our momentum to deliver long-term value for our investors.

So with that, I'd like to open up the call for Q&A.

[Operator Instructions] Our first question coming from the line of Moshe Orenbuch with TD Cowen.

Great. I was hoping you could talk a little bit on the Campo secure side. about the factors that could drive the difference in terms of your range of expectations for revenue, what sorts of things it take to get to the higher end of that? And I've got a follow-up, if that's okay.

So as we look at the CompoSecure business, the key drivers that we look at in terms of growth are what we do in terms of our core business, our core card payment business, how we drive growth internationally and how we ramp up our Arculus business overall. Those 3 factors really drive what will influence the range in terms of our outcomes.

Okay. And maybe as part of the guidance, you talked about getting leverage down to about 3x on an adjusted basis. Could you talk about kind of how that -- how you think about that level, like what that means? Is that insufficiently improved to think about other actions? Or how do you think about that level for the -- by the end 2026?

Yes. Moshe, this is Tom. Thanks for the question. We would expect total leverage to be below 3x. We talked about it pretty consistently. I think Dave and I don't like worrying about debt or cash. And so -- you can expect us to continue moving that lower. We're certainly not afraid of leverage in the context of where it is now.

We think the business is incredibly durable, both on the demand side and in the cash generation side. But you're going to see us bring that down to below 3x. I think that would be pretty comfortable and normal place for us to operate on a go-forward basis.

Our next question coming from the line of Reggie Smith with JPMorgan.

You guys typically, I guess, disclosed card shipments in the U.K. So I guess we can look for. But I was curious, I really would love to dig into the margin expansion -- gross margin expansion you've seen this year of Compo. And specifically, if you can kind of break that down or break that out between maybe increases in price per car versus reductions and COGS itself per card.

And then maybe if you could highlight 2 or 3 things operationally that you did that made those gross margins so strong this year? And then I have one follow-up.

Right. Thanks for the question. So if you think about the implementation of the ROS operating system, that is really lended to lean principles being deployed throughout the organization. And as we've talked about before, having a focus on yields.

So when I think about our margin expansion, there is a favorable price mix impact in the 2025 results -- but there's also a pretty healthy impact from yields. So I think if you think of those 2 things together, those are really the things that drove our gross margin expansion, again with ROS helping drive the improved yields?

Yes. Is there a way to frame that? Maybe 1/3, 2/3, like how should we think about those 2 different components.

I don't think we're going to get into that level of detail here, but just rest assured that we are going to continue to focus on our margin expansion for '26 and have a number of terrific programs lined up to ensure that we continue to drive the operational efficiencies.

And then my last question, and it really just came to me as you guys were talking, listening to your ROS system. I was curious are there any plans to possibly just license it out to other companies rather than acquire them? And then secondarily, I wanted to give you guys a chance to kind of address, I guess, the questions and concerns that may relate to potential conflict of interest between RHLD and GPGI shareholders and how you guys are managing those confidence.

Well, the first question is no. The second one, I don't see a conflict. So I mean, the 2 are inextricable. So the success of RHLD comes from the success of GPGI. So I don't see a conflict, Tom. I don't know...

No, I think maybe I can be more specific. So I guess the concern is that RHLD is compensated on EBITDA. And I guess, presumably, shareholders are driven by EPS. And so there's, I guess, a leverage in interest costs and is -- so directionally, yes...

I guess I mean you rephrase the question, but the answer is still the same is there's no conflict there. This is -- they're tied together. The success of one depends on the success of the other. And we're very focused on the success of GPGI because that's, again, as we've said many times, the foundation of everything we see as a success at RHLD, GPGI has to be the foundation for that. We've got a lot of money invested in GPGI. We want to see it grow and be successful. That's where we apply ROS. That's where we work on growing sales, EBITDA and cash flow because that's the foundation for RHL. So I'm hard for us to see any kind of conflict.

I appreciate that. I only ask because if we get the question from investors, and I wanted you to be able to address it.

Yes, it's -- we've got -- I have to say we have gotten the question before, -- it didn't make sense then, it doesn't make sense now. So I think that's [indiscernible] you have to go back to everyone is to say, okay, we'll point out what the conflict is. And sometimes they say, "Well, get paid in RHL because of the EBITDA, it's okay." But if EBITDA is going down in GPGI, that means it will be going down for RHL, so how is that a conflict or a potential problem? It's not. The 2 are tied and we get paid based upon the success of GPGI.

So I would tell -- [indiscernible] an interesting question, but no, we're not relevant a year ago when it was asked and it's not relevant now.

Next question in queue coming from the line of Jacob Stephan with Lake Street Capital Markets.

Congrats on getting the deal closed in Q1 here. Maybe just to start out, obviously, margins -- gross margins have improved pretty significantly at Compo. I'm wondering what kind of opportunity you're seeing at Husky? Is it similar to the operating structure in COGS that you see at Campo and maybe how it differs from a margin improvement perspective over the next year or so.

I would say the answer is yes, and I will let Rob explain how.

The single biggest -- this is John speaking. The single biggest unlock that we have at Husky is really accelerating the organic volume growth. This is a business that has performed very well and historically in margins, but as not outgrown the market in terms of volume and with our very high variable contribution margins, given our cost structure, if we can accelerate volume growth as sort of embedded in the guidance that Tom described, that alone drops through very meaningfully to the bottom line.

Aside from that, the Resolute operating system brings great discipline around the cost side of business, both on direct and indirect costs, and we've got a good pipeline of cost savings programs that are in place to drive cost out of the business, and that's well underway and good visibility there.

And then I'd say the other side of things is more on the pricing and commercial excellence side. That is an area where we've already been working with the Resolute team to make sure that we're optimizing price and the right products and regions that will drive the balance between volume and pricing to drop through to margins. So I mean, those are the big buckets that I would see at Husky, but Rob,any comment.

Yes. Maybe just add some color to that too, John. One of the biggest initiatives this year for growth is in our aftermarket tooling business. We ran a pilot campaign last year to recapture share in emerging markets, and it was exceptional. So we're doubling down on that at the same time, using the Resolute operating system, we think there's tremendous opportunity to improve our cost competitiveness to make us even more competitive while maintaining and improving margins. But I think those are the biggest drivers.

I would just say generally, and we put the little bit of case study in for Compo, which you've been able to see. I think every business we look at has the same fundamentals in terms of the opportunity where we focus on sales, focus on controlling cost and focusing on reinvesting and marrying all those 3 together with an appropriate capital structure allows us to really get after that, and you're going to see the same thing at Husky.

So I think just as a general view, -- that's as simple as it is, which we're focused on the top line, we're focused on getting after the cost of the fall through, as John mentioned, on variable margins, gives us the flexibility to keep investing and Husky particularly has tremendous opportunities on the R&D side, given the tech for a company that it is and the capabilities it brings to its customers. So we're quite excited about it.

Okay. Got it. Very helpful. Obviously, with the cash flow profile changing pretty significantly. I'm wondering from a capital allocation perspective, does it make sense to be repurchasing shares at this point? Or how do you kind of think through just what your priorities are?

Yes. And our first priorities, we've said several times hasn't changed, and that's to pay down debt. That's going to be our focus.

Thank you. And' there are no further questions in the queue at this time. Ladies and gentlemen, this concludes today's conference call. Thank you for your participation, and you may now disconnect.

Thank you for standing by. My name is Liz, and I'll be your conference operator today. At this time, I would like to welcome everyone to the CompoSecure Third Quarter 2025 Earnings Call. [Operator Instructions]

I would now like to turn the call over to Steven Feder, CompoSecure's General Counsel. Please go ahead.

Good morning, and welcome to CompoSecure's conference call, where we will review CompoSecure's Third Quarter 2025 Financial Results and discuss the planned business combination with Husky Technologies. With me on the call is Dave Cote, Executive Chairman of CompoSecure; Tom Knott, Chief Investment Officer of CompoSecure; Jon Wilk, Chief Executive Officer; Tim Fitzsimmons, our retiring CFO; and Mary Holt, incoming Chief Financial Officer. We will begin with prepared remarks and then open the call for Q&A.

During the call, we will make statements related to our business that may be considered forward-looking, including statements about our growth strategy, customer demand, our ability to maintain existing and acquire new customers, implementation of the CompoSecure operating systems and our guidance for '25 and '26 as well as other statements regarding plans and prospects. For a discussion of material risks and other important factors that could affect our actual results, please refer to the information in our annual report on Form 10-K and other reports filed with the SEC, which are available on the Investor Relations section of our website and on the SEC's website at sec.gov.

Please note that effective as of February 28, 2025, the date of the spin-off of Resolute Holdings Management, Inc. and as a result of the management agreement between Resolute Holdings Management, Inc. and the company's wholly owned subsidiary, CompoSecure Holdings, the results of operations of CompoSecure Holdings and the operating companies which are its subsidiaries are not consolidated in the financial statements included in this report and instead are accounted for under the equity method of accounting.

In the earnings release we issued earlier today and the discussion on today's call, we also present non-GAAP financial measures to help investors better understand our operating performance. The company believes these non-GAAP financial measures provide useful information to management and investors regarding certain financial and business trends impacting the company's financial condition and results of operations. These non-GAAP financial measures should not be considered as an alternative to performance measures derived in accordance with U.S. GAAP and may be different from similarly titled non-GAAP measures used by other companies. A reconciliation of GAAP to non-GAAP measures is available in our press release and earnings presentation available on the IR section of our website.

Thank you. And with that said, let me turn the call over to Executive Chairman, Dave Cote.

Well, what a wicked great day we have to celebrate today. We have good news busting out all over. So before I get into CompoSecure's third quarter, I want to begin with a few remarks about my excitement regarding the Husky transaction.

When my family invested in CompoSecure over a year ago, a big part of the value-creation plan was to implement our operating system to catalyze organic growth, improve margins and build a rigorous discipline around capital allocation to pursue accretive inorganic growth.

While still early, we're delivering strong organic growth and improved profitability at CompoSecure. The third quarter results are terrific. Over the past year, we have been actively looking for another great business that could benefit from our operating system and shares the same foundational characteristics we look for at Honeywell, Vertiv and CompoSecure. I am delighted to report that we have found all that and more in Husky.

We view the combination of CompoSecure and Husky as the foundation for a best-in-class diversified compounder. CompoSecure is the global leader in manufacturing premium metal payment cards and authentication solutions. Husky is the global leader in highly engineered injection molding equipment and aftermarket services. Collectively, they form a platform positioned to become the home for market-leading businesses that operate in attractive industries, generate recurring revenues, deliver high growth and profitability, achieve attractive returns on incremental invested capital and offer significant opportunities for long-term value creation.

Husky checks every box of our investment criteria. It has a great position in a good industry. It differentiates with technology, and it presents a substantial upside potential in both organic and inorganic growth, along with clear opportunities for margin expansion.

Coupled with an ability to generate strong free cash flow and a healthy pro forma balance sheet that will delever quickly, we find this to be an incredibly compelling opportunity for CompoSecure investors as we expand the operating platform. Tom and I will provide further details on the transaction and the business after we cover CompoSecure's third quarter results.

Turning to CompoSecure, a year after our investment, it is gratifying to see the progress we've made. We have accelerated organic growth, strengthened our operating discipline and begun to realize the benefits of cultivating a high-performance culture.

Our strategic initiatives underpinned by the CompoSecure Operating System, or COS, are yielding results, and the business is consistently performing at a much higher level. The nice thing about all this is that it is just the beginning with tremendous opportunity ahead to further drive investor value creation.

Significant opportunities remain for CompoSecure to unlock faster organic growth while continuing to drive meaningful operational efficiencies across the business. The combination with Husky diversifies CompoSecure's business and adds multiple levers of future value creation. Our focus will remain on disciplined execution, innovation and maintaining the momentum that's driving our success. And we will continue making strategic investments necessary to fully capitalize on the opportunities to deliver long-term value for all our investors.

With that, I'll turn the call over to Jon.

Thanks, Dave. Good morning, everyone, and thank you for joining us for our third quarter conference call. Before we go through the Q3 results, I want to take a moment to publicly recognize Tim Fitzsimmons and his work as our CFO over the past 13 years. As announced in June, Tim is retiring, and I want to extend my deepest thanks for all his contributions and wish him well in his retirement. He has set a strong financial foundation for the company that we will benefit from for years to come.

After an extensive search, I am thrilled to welcome Mary Holt, our incoming CFO, who joins us on the call today. Mary brings a wealth of experience and knowledge from world-class organizations such as Honeywell and Pfizer, and we are confident her background, financial acumen, proven leadership and experience with lean management operating systems will be powerful additions to our business and will play a key role in helping us advance our strategic initiatives.

Now moving to Slide 3. As we mentioned last quarter, our results are being reported using equity method accounting following the completed spin-off of Resolute Holdings Management earlier this year. On this call, we will refer to non-GAAP measures for net sales, gross profit and related operating measures. With that, let's review the quarter.

Net sales increased 13% year-over-year to $120.9 million, driven by disciplined execution, operational focus and continued support from Dave and the Board for our strategic initiatives.

Pro forma adjusted EBITDA increased 30% to $47.7 million, with an EBITDA margin of 39.5%. Implementation of the CompoSecure Operating System is clearly having a strong impact as we achieved gross margins of 59% for the quarter compared to 51.7% for the same quarter prior year. We also saw numerous customer program launches during the quarter, which I'll comment on momentarily.

And Arculus delivered another strong net positive quarter, supported by expanding commercial activity. We continue to see traction with banks, fintechs and exchanges who are launching innovative card programs and seeking enhanced security features.

With sales momentum building and operating efficiency improving, we are raising our 2025 outlook and introducing strong guidance for 2026. For fiscal year 2025, we are raising our full year guidance and now expect non-GAAP net sales of approximately $463 million and pro forma adjusted EBITDA of approximately $165 million to $170 million. We are also announcing financial guidance for 2026, where we expect non-GAAP net sales of approximately $510 million and non-GAAP pro forma adjusted EBITDA of approximately $190 million.

Turning to Slide 4. We shared a version of this slide last quarter, but it's worth a quick refresher for those new to the company since our reporting structure is rather nuanced. When evaluating CompoSecure's performance, we suggest focusing on core operating results after deducting the management fee paid to RHLD. In turn, RHLD's results primarily reflect the same management fee income, net of its own operating expenses.

Demand for our metal card products remains strong and is supported by ongoing trends we see in the market as outlined on Page 7. We also continue to make operational progress highlighted on the right side of the slide, and we are seeing sustained improvements in the business from the CompoSecure Operating System, including tangible benefits materializing on the top and bottom line as well as strong gross margin improvements.

Turning to Slide 6. We continue to see strong activity from both existing customers and new entrants, with several new and expanded programs launching in the quarter, such as Citi Strata Elite, Chime, a Bank of America, America Airlines co-brand, Alaska Airlines co-brand, Bank of Montreal and Gemini XRP. These programs reinforce the strength of our partnerships and the value we bring to issuers seeking to enhance their brand loyalty and deliver improved returns through higher customer acquisition, spending and retention.

With that, I'll pass it to Tim for a few remarks.

Thank you, Jon. I want to say what an honor it's been to work alongside such a talented team and to help CompoSecure through its evolution into a strong public company it is today. I'm deeply grateful to our employees, our leadership team, our Board of Directors and our investors for their trust and collaboration over the years. The company is well positioned, and I have no doubt CompoSecure is poised for continued growth and success under Dave and Jon's leadership.

I also would like to wish Mary Holt the best in her new role. She brings tremendous experience, deep financial expertise and a proven record of leadership. I'm confident she'll make an impact and continue to strengthen the finance organization as the company advances into its next phase of growth.

Now for some further financial details on the quarter. As Jon mentioned, following the February 28 spin-off of Resolute Holdings and the execution of the management agreement, Resolute Holdings now consolidates the financial results of CompoSecure operating under GAAP. The non-GAAP financials we are providing remain comparable to historical results with the only change being the deduction of the management fee paid to Resolute Holdings. For Resolute Holdings, the non-GAAP financials reflect the management fee revenue less salaries and operating expenses.

Now I'll walk through our Q3 2025 financial performance. Unless stated otherwise, all comparisons and variance commentary are on a year-over-year basis. In Q3, non-GAAP net sales increased 13% to $120.9 million compared to $107.1 million. Non-GAAP gross margin for the quarter was 59% of net sales compared to 51.7%. Non-GAAP pro forma adjusted EBITDA for the quarter increased 30% to $47.7 million, up from $36.6 million. At September 30, on a non-GAAP basis, CompoSecure had $224.6 million of cash and cash equivalents, $40.7 million of investment in U.S. Treasury bills and $190 million of total debt. This compares to September 30, 2024, when the company had $52.7 million of cash and cash equivalents and $330 million of total debt.

The strong increase in cash for the quarter is primarily driven by proceeds from warrant exercises as well as free cash flow generation from operating activities. On Slide 13, you can see that domestic net sales grew 31% to $105.1 million, an increase of $25.1 million. International net sales declined 42% to $15.8 million, down $11.3 million due to timing of certain customer orders. As noted before, our international business can grow -- can show greater variability quarter-to-quarter due to a smaller scale.

Turning to Slide 14. Non-GAAP pro forma adjusted EBITDA was $47.7 million, up 30% year-over-year and non-GAAP pro forma adjusted EBITDA margin was 39.5%, up 529 basis points year-over-year.

Now let me turn it back to Jon.

Thanks, Tim. As mentioned earlier in the call, we raised our full year guidance. We now expect non-GAAP net sales to be approximately $463 million and pro forma adjusted EBITDA to be approximately $165 million to $170 million, up from our previous guidance of $455 million and $158 million, respectively.

Based on the disciplined execution of our strategic initiatives and the momentum we are seeing in the market, we have issued financial guidance for fiscal year 2026. As mentioned, we expect non-GAAP net sales of approximately $510 million and non-GAAP pro forma adjusted EBITDA of approximately $190 million. As a reminder, our raised guidance for 2025 and our guidance for 2026 includes the payment of Resolute Holdings management fee and does not include any impact from Husky.

I'd like to close with a few thoughts. The progress we have made over the past year is increasingly positive in our financial performance, in the way we operate and in the culture that is taking shape across the organization. The CompoSecure Operating System continues to deliver meaningful impact, helping us improve execution, enhance efficiency and drive record results.

We are operating from a position of strength, supported by expanding customer relationships, continued innovation and strong market demand. The opportunity ahead is substantial, and we are focused on building upon this momentum to deliver sustained long-term value for our investors.

With that, I'd like to turn it back to Dave to discuss the transaction with Husky Technologies.

Switching to Slide 3 of the business combination presentation. The combination with Husky creates a best-in-class diversified compounder. The combined platform brings together 2 global market leaders, each operating in fundamentally good industries with best-in-class financial profiles, approximately 70% recurring revenue and significant long-term growth potential. Importantly, this transaction is highly accretive to CompoSecure's investors, supports long-term value creation and preserves balance sheet flexibility for future M&A.

Starting with the market, Husky operates in a fundamentally good industry that has been historically underappreciated. The industry has supported solid growth and attractive margins for years, and we believe the fundamentals are firmly in place for that to continue for a long time to come, especially with the growing awareness of PET's superior carbon footprint, the regulatory push for plastic circularity and the growing adoption of recycled plastics in packaging.

Growth in PET beverage demand, primarily bottled water, is the underlying secular trend driving the market for Husky's equipment, and it's hard to imagine a future without a lot more packaged beverage bottles as the world continues to urbanize. Overall, Husky is well positioned to capitalize on favorable long-term demand drivers across its key end markets.

Turning to the company. Husky is a globally recognized brand with a long-standing reputation for manufacturing best-in-class systems. Platinum and the management team have established a great foundation, and their efforts have yielded solid organic growth in the last 5 years with identifying opportunities to accelerate growth in 2026 and beyond.

In many ways, Husky today is where both Honeywell and Vertiv were at the onset of my involvement. Husky is well positioned to benefit from the same operating system and process discipline that drove consistent outperformance at Honeywell, Vertiv and now CompoSecure.

All of us see the logic and opportunity with Husky. Platinum is rolling about $1 billion of their equity. My family has $1 billion of equity, and the management team is also heavily invested in the deal. I would also add that we have raised and oversubscribed $2 billion private placement from some of the leading institutional investors in the world on the same deal terms we covered today. As you can probably tell, I'm pretty psyched about this opportunity, and I hope you are, too.

With that, let me turn the call over to Tom Knott, our Chief Investment Officer, who will take you through the transaction and business in more detail.

Thank you, Dave. Let me begin by reiterating how excited we are about the opportunity for CompoSecure to combine with Husky. The transaction establishes us as a highly differentiated and diversified compounder and the opportunities ahead are many.

Stepping back, we began this journey in September 2024 with the acquisition of a majority interest in CompoSecure. Since that time, the company's performance has accelerated materially, and we are beginning to see early gains from the systematic deployment of our operating system throughout the company. We have a proven approach to business operations, and we are confident that Husky exhibits all the same foundational qualities that will enable durable long-term value creation for our investors as we begin working with Brad and his team.

Turning to Slide 4. We are acquiring Husky for approximately $5 billion or 11.2x 2026 net adjusted EBITDA, applying an enterprise value of $7.4 billion or 11.6x 2026 net adjusted EBITDA on a combined basis. The transaction is expected to be accretive to diluted EPS in the first full year post combination and will be funded through a $2 billion private placement, approximately $1 billion in rolled equity from Platinum and approximately $2 billion of debt, resulting in 3.5x net LTM leverage. We expect the transaction to close in the first quarter of 2026, subject to customary regulatory approvals and closing conditions.

Turning to Slide 5. Husky checks every box of our investment criteria just as CompoSecure did. It is the #1 player in both PET system sales as well as aftermarket. The company operates in a large, structurally growing industry characterized by acyclical customer demand. It has a long history of engineering-led innovation that drives strong technology differentiation.

We are also excited about growth opportunities we see for the business, supported by 65% recurring revenue from aftermarket sales and a highly fragmented competitive landscape. Lastly, we have already started working with the Husky team on implementing our operating system to drive growth, further margin expansion and continued strong free cash flow.

Turning to Slide 6. The transaction provides significant structural and financial benefits to CompoSecure. It diversifies our revenue base and end market exposure, reduces customer concentration, increases scale, will be highly accretive to earnings, improves capital allocation flexibility and offers substantial runway for further investor value creation.

Turning to Slide 7. Husky is the global leader in integrated engineered equipment and aftermarket services. Its business model operates much like a razor-razor blade model with an installed base of approximately 13,500 systems that result in approximately 65% recurring revenues from aftermarket parts, tooling and services.

Importantly, while Husky's equipment and services typically represent less than 5% of customers' annual operating costs, they are critical for the customers' operations with immense focus on productivity, uptime and reliability. This focus on high criticality, high-value products aligns closely with how we think about CompoSecure's market leadership in metal cards.

Turning to Slides 8 and 9. These pages really summarize the pro forma platform. The combined businesses deliver immediate scale and are positioned to deliver mid- to high single-digit organic growth, approximately 70% recurring revenue, approximately 12.5% EBITDA growth annually, 100 basis points of margin expansion opportunity per year and approximately 7.5% free cash flow yield in year 1. Taken together, the company has a best-in-class financial profile, durable growth drivers, all being offered at a significant discount to peers.

In summary, we are extremely excited about this transformative transaction and to partner with Husky. The transaction brings together 2 market leaders to create a best-in-class diversified compounder. While I'm excited about the momentum we've already seen at CompoSecure as we deliver above-market, top and bottom-line growth, I am even more excited about the opportunities I see ahead for the combined platform.

With that, I'll turn it back to Dave for some closing remarks.

Well, as I said at the beginning, I'm incredibly psyched about this opportunity. Husky has a great position in a good industry, and we see a clear path to deliver solid long-term growth with more than 500 basis points of identified margin upside for the combined company.

The long-form investor presentation we shared during the private placement process was also filed today, and it has a lot more detail that should go a long way to helping you see why we're so excited about this combination and about both businesses. On behalf of CompoSecure, we look forward to providing our investors with great returns for many years to come. We hope you'll join us.

So with that, I'll open up the call for Q&A.

[Operator Instructions] Your first question comes from the line of Moshe Orenbuch with TD Cowen.

Great. Congrats on all the stuff that you have accomplished and disclosed today. Wondering because I was able to kind of scroll quickly through the presentation, only saw it a few moments ago, but I don't think it includes like share count. Like how do we think about -- as we think about shares, the effective number that will be included in that for those purposes?

Yes, Moshe, this is Tom. The share count you should think about on a pro forma basis will be 291 million shares.

Got it. Okay. Good. And then maybe with respect to, as you think about the margins, a very strong margin performance on CompoSecure and the improvement that you've seen. Is there a way to kind of discuss how much of that improvement that you are hoping to see from the implementation of the operating system is kind of in place and how much of that is still coming? And maybe just if you could just kind of discuss with us where you think the CompoSecure piece of the business is in that journey.

So thanks, Moshe. When we think about where we are, there is still enormous potential ahead in the operating system work to continue to improve our efficiency. At the same time, and as we've said on prior calls, we will continue to invest in critical areas of growth, building out the sales team, building out the engineering and R&D capability of the company to help make sure we've got the things in place to deliver that sustained organic growth over time. So still tremendous opportunity ahead, some of which will flow through to margins, some of which will be reinvested to plant seeds for the future.

The next question comes from the line of Jacob Stephan with Lake Street Capital Markets.

I'd love to say congratulations for today. Just wanted to start off with a question on the acquisition. Maybe you could kind of help us think through some of the synergies you have within your core kind of metal card business and what you see with Husky's kind of injection molding equipment.

Yes. At the end of the day, we're not pointing to nor counting on any kind of synergies between the 2 businesses. You can expect there are some, but we didn't want to count on anything. Where the synergies come from in what can be considered unrelated businesses, it's the same thing that we used to point to at Honeywell, where we get asked how do aerospace, controls, chemicals and turbochargers go together. And everybody is expecting some kind of made-up technology insight, which we didn't do. And we just said, at the end of the day, the same thing that matters there is what matters here.

It's the consistent application of a management operating system that works quite well and being able to implement the operating system, it will be the Husky operating system, the CompoSecure Operating System, getting functional transformation implemented, making sure you have a very good people process in place, agreement on strategic priorities with the monthly growth days, which sounds like a simple meeting, but it's actually a lot more than that.

It's the application and implementation of those management philosophies that make all the difference in the world. Getting that culture to the point where people want to perform at a high level because it's fun and they enjoy it matters greatly. It's a tough thing to measure. But when you get it, like we did at Honeywell, like we've got at Vertiv, like it's happening at CompoSecure, which is going to happen at Husky, that's where all the magic happens.

Got it. And maybe you could kind of help us think through some of the more recurring natures of that business. I know you guys kind of talked about 70% recurring revenue mix. But in addition to the actual injection molding equipment, what about the business is recurring?

Yes. So like we said on the call a little earlier, it's very much sort of the razor-razor blade where you've got a large installed base of machines, and we're selling aftermarket parts and services to those customers to support the installed base. So you've got a big installed base and you're selling parts and services to those customers to support the machines that are already in place.

Your next question comes from the line of Hal Goetsch with B. Riley Securities.

Thanks for all the detail on this transaction. I got 2 questions and one relates to Compo on margin expansion and then on the guidance and maybe margin expansion potential of the combined company. We were thinking Compo was going to have about 50% gross margins for the long haul. And in less than a year, they're in the high 50s. And like you just said, you've guided to maybe 100 basis points of margin expansion in the combined business. And I'm just thinking that seems modest at this time. But before we -- but on the first part, can you just tell us what kind of has happened operationally to get the kind of efficiency you've got in the last 3 quarters?

So Hal, literally putting into practice exactly what Dave described, putting in place that operating system, the routines, the tenacity, the culture change that we have put in place, those are the things that are driving the improvements that we talk about. And it is, we believe, sustainable, and we believe there is still more opportunity ahead.

The comment that was made earlier is that we believe there is that kind of opportunity on an annual basis to continue to improve margins across the combined businesses. You also heard my answer to Moshe's question earlier, which was this idea that we still believe there's meaningful opportunity with Compo, some of which will accrete to margins, some that we will reinvest in planting seeds to help make sure that we've got the sustained organic growth, the sustained innovation pipeline and the breakthrough R&D to help make sure that we can continue to deliver for our customers. And it is literally that -- those lessons from Honeywell, the lessons from Vertiv, now Compo that we believe we can implement at Husky as well.

Yes. So if I get one follow-up to kind of triangulate this. So if both companies at the spot where Honeywell was at and Vertiv was at when Mr. Cote got involved, where did margins go with those businesses over a 36-month period?

Well, I don't have those off the top of my head, but they're public record and they're good. Let's put it this way. I've learned that analysts can't handle anything above a commitment to improve basis points above 500. So I used to think at Vertiv that we could get 1,000 points. They couldn't handle it. So I said, "Okay, it's 500." And we're at 1,000, they say, "Oh, well, where can you go next?" And we can't say 1,000 points more because they can't handle it. So that's why we're telling you 500.

Ladies and gentlemen, that's concludes today's call. Thank you all for joining. You may now disconnect.

Good day, everyone, and welcome to the CompoSecure Second Quarter 2025 Earnings Call. [Operator Instructions] Please note this event is being recorded. Now it's my pleasure to turn the call over to the General Counsel, Steve Feder.

Good afternoon, and thank you for joining us to review CompoSecure's Second Quarter 2025 Financial Results. With me on the call from CompoSecure are David Cote, Executive Chairman; Jonathan Wilk, Chief Executive Officer; and Tim Fitzsimmons, Chief Financial Officer. They will begin with prepared remarks, and then we will open the call for Q&A. During the call, we will make statements relating to our business that may be considered forward-looking, including statements concerning our plans to execute on our growth strategy, customer demand, our ability to maintain existing and acquire new customers, implementation of the CompoSecure Operating System and our guidance for the balance of 2025 as well as other statements regarding our plans and prospects.

Forward-looking statements may often be identified with words such as we expect, we anticipate or upcoming. These statements reflect our views only as of today and should not be considered our views as of any subsequent date. We undertake no obligation to update or revise these forward-looking statements. Forward-looking statements are not promises or guarantees of future performance and are subject to a variety of risks and uncertainties that could cause actual results to differ materially from our expectations. For a discussion of these risks and other important factors that could affect our results, please refer to the information in our 10-K, 10-Qs and other reports filed with the SEC available on the Investor Relations section of our website and on the SEC's website at sec.gov.

Please note that effective as of February 28, 2025, the date of the spin-off of Resolute Holdings Management Inc. and as a result of the management agreement between Resolute Holdings Management Inc. and the company's wholly owned subsidiary, CompoSecure Holdings, the results of operations of CompoSecure Holdings and the operating companies, which are its subsidiaries are not consolidated in the financial statements of CompoSecure Inc. included in our quarterly report on Form 10-Q and the accompanying earnings presentation and instead are accounted for by CompoSecure under the equity method of accounting. In the earnings release we issued earlier today and in the discussion on today's call, we also present non-GAAP results to help investors reconcile and better understand our operating performance.

The company believes these non-GAAP financial measures provide useful information to management and investors regarding certain financial and business trends impacting the company's financial condition and results of operations. These non-GAAP financial measures should not be considered as an alternative to net income or any other performance measures derived in accordance with U.S. GAAP and may be different from similarly titled non-GAAP measures used by other companies. A reconciliation of GAAP to non-GAAP measures is available in our press release and earnings presentation available on the IR section of our website. Thank you. And with that said, let me turn the call over to Executive Chairman, Dave Cote.

Of our investment in CompoSecure, and I want to step back and assess the opportunity compared to what we saw at the time of our investment. That said, Tom and I were confident that CompoSecure had a great position in a good industry. This has proven to be true. We are far and away the leader in metal cards globally, but importantly, metal cards in total represent less than 1% penetration of the payment card market. This is the case even though the financial and brand benefits our metal cards offer to an issuer are huge and proven with the most recognizable card programs in the world. We believe the upside for us and our customers is significant, and we believe the opportunity for metal to take a larger share of the total market is very real.

I can confirm we are seeing early results from our focus on Compo’s sales efforts and are confident in the continued investments we're making to capitalize on the very large opportunity we see. We're also very encouraged with the early results from the implementation of the Compo Operating System, or COS. We believe at the time of our investment that opportunities existed for step changes in performance, and we're beginning to see those come to fruition. We're making capital investments across the enterprise that we believe will drive meaningful results over time. All of this is intended to enable CompoSecure to build and sustain a culture of excellence that delivers for our customers, employees and investors in a very real way over time.

The high-performance culture is the glue that allows COS to become ingrained throughout the enterprise and beginning to happen. This will take time, we've proven before, this approach to building a business [ will work ]. As I've said, I have even greater confidence today about what is possible for CompoSecure than when we first invested. And with that, I'll turn the call over to Jon.

Thank you, Dave. Good afternoon, everyone, and thank you for joining us for our second quarter conference call. As mentioned last quarter, our results are being reported using equity method accounting following the completed spin-off of Resolute Holdings Management earlier this year. Due to the change in accounting on this call, we will refer to non-GAAP measures for net sales, gross profit and related operating measures. With that context, let's dive into the quarter. We delivered strong top line growth in Q2 with non-GAAP net sales increasing 10% year-over-year to $119.6 million.

This was driven by robust domestic demand from traditional banks and leading fintechs. Pro forma adjusted EBITDA increased 26% to $46.3 million for the quarter, driven by organic revenue growth and the early operational efficiencies from the ongoing implementation of the CompoSecure Operating System. We also saw several high-profile customer program launches during the quarter, which I will expand on shortly. For fiscal year 2025, we are raising our guidance and now expect non-GAAP net sales to be approximately $455 million. We also now expect pro forma adjusted EBITDA to be approximately $158 million.

Both are up from prior guidance of mid-single-digit growth. This updated guidance reflects continued commercial and operational momentum in the second half of the year and ongoing foundational investments as well as the payment of Resolute Holdings management fee. You saw Slide 5 last quarter, but as a quick reminder, because our reporting can be a bit complex, when you're trying to understand the CompoSecure business, think of it as our traditional operating results minus the management fee paid to Resolute. And when it comes to Resolute, it is essentially the management fee from CompoSecure less whatever operating expenses they incur.

Turning to Slide 6. We continue to see strong activity around premium upgrade cycles and card program refreshes. These are great examples of how issuers are enhancing the value proposition of established premium products and speaks to the ROI of metal cards. We're also seeing growth from new market entrants and fintech’s who are leaning into the differentiated offerings with metal card programs. Metal cards are increasingly serving a broad range of customers with product tiers designed to meet the needs of the high net worth, mass affluent and also includes mass market segments.

On the operational side, we are making tangible progress through the CompoSecure Operating System. We've rolled out our operating system across all functional areas, establishing more structure and discipline in how we operate. We're building a high-performance culture that promotes collective ownership and drives accountability across the organization. And to support long-term growth and sustained execution, we've prioritized investments in talent and manufacturing capabilities, efforts that will enable us to scale efficiently and deliver strong margins.

Taken together, we are clearly beginning to see the benefits of the CompoSecure Operating System in our financial performance, as you can see from our improved margins this quarter. Now turning to Slide 7. We continue to build on our market leadership with strong program activity during the quarter, highlighted by the launch and expansion of several metal card programs. They include the Chase Sapphire Reserve and the Chase Sapphire Reserve Business Card, the Coinbase One Card, Geminicrypto.com and the MGM Reward card, demonstrating the breadth of customers that value our differentiated offerings.

As we step back and look at the broader picture, Slide 8 underscores just how much opportunity we see ahead. While metal cards remain a small fraction of total payment cards, consumer demand continues to rise, and we've proven our ability to grow within that white space. With a market estimate of over 4 billion payment cards shipped every year and more issuers looking to differentiate through premium experiences, we believe there's a long runway for us to continue capturing share and delivering strong returns. Our combination of design leadership, operational execution and trusted customer relationships puts us in a great position to continue to scale.

On Slide 9, we continue to see strong signals from top issuers that reinforce the durability of premium metal card demand. These trends across 3 of the largest global issuers show just how much is being invested to attract and retain high-value customers. Turning to Slide 10. We're seeing growing momentum from Arculus as a secure multifunction platform for digital authentication and asset protection. We delivered another net positive quarter for Arculus, supported by continued operational progress and commercial momentum. The Arculus team was especially proud to partner with Coinbase and American Express on the launch of the new Coinbase One Card, the first crypto card on the American Express network, which underscores our role in enabling innovation in digital finance.

As a reminder, and for those who may be new, our Arculus offering spans 3 core applications: Arculus Authenticate, our Passkey-based authenticator, secure payment with Arculus Authenticate and Arculus Cold Storage, the digital asset hardware wallet. These tools enable a range of use cases from password less login and account validation to step-up authentication and digital asset security. I'll now hand it over to Tim to review our financials before returning for closing remarks.

Thank you, Jon, and good afternoon, everyone. Before running through our financial results, hopefully, many of you caught the news last month that I will be retiring later this year after more than 13 incredible years with the company. It's been a remarkable run, and I'm grateful to have had the opportunity to work with such a talented team. I'm excited to see how the next chapter of CompoSecure unfolds and know the team will continue to raise the bar while I participate in the company's growth as an adviser and shareholder. I want to go through the required accounting change as a reminder from last quarter.

As of February 28, following the spin of Resolute Holdings and the execution of the management agreement, Resolute Holdings is required to consolidate the financial results of CompoSecure's operating businesses in accordance with U.S. GAAP. As a result of this change, the results of CompoSecure Holdings and its subsidiaries, which are our operating companies, are no longer consolidated in our GAAP financials. Instead, our share of earnings from CompoSecure Holdings is presented as a single line item in our income statement and the carrying value in the assets of CompoSecure Holdings is now reflected on our balance sheet. The non-GAAP financial information we are providing is comparable to our historical financial statements, with the only change being the management fee paid to Resolute Holdings.

For Resolute Holdings, the non-GAAP financials show management fee revenue from CompoSecure less salaries and ongoing operating expenses. Now turning to the quarter. I'll walk through our Q2 2025 financial performance. Unless stated otherwise, all comparisons and variance commentary are on a year-over-year basis. In Q2, non-GAAP net sales increased 10% to $119.6 million compared to $108.6 million in the prior year period, driven by strong domestic demand and growth across both traditional financial institutions and fintech partners. Non-GAAP gross margin for the quarter was 57.5% of net sales compared to 51.6% for the same quarter of the prior year. The gross margin expansion reflects improved manufacturing efficiencies driven by the Compass Cure Operating System, along with favorable product mix.

Pro forma adjusted EBITDA for the quarter increased 26% to $46.3 million, up from $36.7 million in the year ago period. With the increase due to organic revenue growth and an early operational efficiencies from ongoing implementation of the CompoSecure Operating System. Pro forma adjusted EBITDA includes the payment of a management fee in the amount of $3.4 million for Q2 2025 as incurred by CompoSecure Holdings in the quarter and a $3.3 million fee for Q2 2024 on a pro forma basis for comparability as if the management fee had been in effect in this quarter as well. You can find the statement of operations in the appendix of the company earnings slides for a full reconciliation. We continue to generate strong cash flow, bringing in approximately $52 million in operating cash flow year-to-date on a non-GAAP basis. This reflects both the efficiency of our model and our continued focus on disciplined execution.

At June 30, 2025, on a non-GAAP basis, CompoSecure had $96.5 million of cash and cash equivalents and $192.5 million of total debt, resulting in net debt of $96 million and a net debt leverage ratio of 0.66x. This compares to June 30, 2024, non-GAAP cash and cash equivalents of $35.4 million and total debt of $330.9 million that resulted in net debt of $295.5 million and a net debt leverage ratio of 2.15x. Both periods reflect pro forma management fees to Resolute Holdings. For further details and reconciliations, please refer to the appendix.

On Slide 14, you can see that the domestic net sales of CompoSecure Holdings grew 22% to $104.3 million, an increase of $19.1 million compared to the prior year period, while international net sales of CompoSecure Holdings declined 35% to $15.3 million, down $8.1 million versus the prior year period. As we've often said in the past, our international business tends to see greater fluctuations given its smaller scale relative to our domestic business. Turning to Slide 15. Adjusted net income was $28.4 million compared to $24.2 million in the year ago period. Adjusted diluted EPS was $0.25 per share compared to $0.23 in the prior year period. With that, I'll hand it back to Jon.

Thanks, Tim. As mentioned, we are raising our full year guidance. We now expect non-GAAP net sales to be approximately $455 million and pro forma adjusted EBITDA to be approximately $158 million, up from our previous guidance of mid-single-digit growth. Guidance for pro forma adjusted EBITDA includes the payment of the Resolute Holdings management fee in both periods for comparison. This updated guidance reflects continued commercial and operational momentum in the second half of the year and ongoing foundational investments.

I'll close with reiterating what Dave highlighted in his opening remarks. Over the course of the past year, we've been planting seeds of investment that are starting to pay off, which is helping us drive growth while simultaneously improving operating efficiency. We believe the addressable market opportunity is huge given the continued interest and growing demand for premium payment products, authentication and digital asset solutions. And our conviction about what's possible for CompoSecure is stronger than ever, and we believe we will continue to drive both short- and long-term value for our shareholders. With that, I'd like to open up the call for Q&A.

[Operator Instructions] One moment for our first question that comes from the line of Moshe Orenbuch with TD Cowen.

Great. Jon, I guess hoping to -- I mean since you've got so many kind of new and refreshed products out there and MX coming in the second half of the year, I didn't notice that whether you mentioned Citi Strata, that's another one that just recently launched, I think, is a product of yours. Can you talk about when those players actually order those cards and kind of when we see them in your results?

Yes. And I did see a report with your detective work on the Citi Strata card. So -- and yes, that is a card that we make. So look, it depends on the issuer typically, I'd say, 1 to 2 quarters ahead, depending on the size of the program for some of the larger programs that we would expect.

Got it. And Dave, I was struck by your comment about greater confidence in the investment now. And I think there's a lot of wonderful things that have been going on. I mean there's practically a war in the high-end card segment. So -- and you've had better sales likely to see that continue. Arculus continues to improve. Could you talk about what the factors kind of that drove you to that statement? Which are the things that are the most important that you feel have improved since you made the investment?

So Moshe, Dave had to drop off after his remarks, I apologize. We've had that conversation. And I think in his remarks, he tried to highlight sort of the 2 sides of the story. It's one on the organic growth side. And when we talk about the impact of the changes that are happening, number one, just we've talked about the ability to leverage Dave, the Resolute team, our Board to help drive some of that organic growth, making introductions in a pretty material way in terms of trying to help accelerate that. In addition to what we've talked about more, which is the operating system work and the efficiency work. And so his prepared remarks were intended to convey both the market opportunity, which I think he sees even more clearly today, just how big and important it is, combined with the progress being made on the organic growth and the operations side.

[Operator Instructions] It comes from Brian Vieten with Needham.

Congrats on a great quarter. You called out the commercial momentum. Any particular reason the back half wouldn't look more like Q2 here, maybe an offset to the -- some of the recent crypto launches, which seem well positioned? Or was it more of just a pull forward here?

We don't see it as a pull forward. We see continued momentum sort of as we move through the year. Yes, we've given you specific point guidance for how we see the year unfolding. There's always some natural timing for how we see things play out through the year, but it was certainly not a pull forward into Q2 in terms of our results.

Okay. Great. And then just on the margin profile of some of those newer launches, are those cards coming in with a similar margin profile, anything to call out there?

On the margin question, as both Dave and I, and Tim all noted actually, we are beginning to see, we believe, the effects of the operating system work. And it's happening throughout every function in the company, including manufacturing. But it is, we think, a pretty meaningful contributor to the improvements that we saw in gross margin during the quarter. So I'd say we're really pleased with the operating system work and the impacts that it's driving.

Our next question is from Reggie Smith with JPMorgan.

Congrats on the quarter. I guess I have a few questions. First, I want to hear, obviously, the gross margins were up sharply, and I understand that the operating system is working, but I was hoping maybe you could talk about maybe some of the most impactful operational changes you guys have made. And I'm going to ask you this, I don't know that I'm going to answer, but how much more efficiency is available like over the next 12, 18 months? And then I have some follow-ups.

Reggie. So I'm not going to get specific on the specific operational improvements, which function of operations. It is throughout manufacturing. And in addition to the manufacturing I've talked about, it's literally from the time we take an order to the time cash comes in the door. The intensity, the focus, the discipline that we are providing around all aspects of that are all contributing to the improvements that you're seeing in the gross margin lines. And so as we move through the back half of the year. Some of that's impacted by product mix in a particular quarter. And you will see perhaps some variation and fluctuation in that, but we believe we can maintain this strong margin profile and continue to drive additional improvements, which was the core to your question.

Those improvements let us continue to reinvest in the business, right, in manufacturing, in sales and other things that we need to ensure we continue to grow the business and continue to drive additional operating efficiencies. So we've said from the beginning, Reggie, we will reinvest some of that back in seed planting for the future. And we believe there's actually still a good bit of opportunity ahead of us on the operations side.

That sounds good. Looking forward to seeing that unfold. I was hoping to ask Dave, and maybe you can speak to this, but I would love to hear about the M&A pipeline and maybe talk about how many deals are in like serious diligence and what you expect there? And then finally, and you may or may not be able to answer this, but looking at your Resolute Holdings, and I know that they earn a management fee, but I'm not sure if there's anything else in there, kicker or incentives that may explain its value. Am I missing something there on Resolute in terms of what they can earn from your success?

So on the first part of the question, I would say the M&A pipeline is robust. There are a lot of opportunities out there that we are looking at and evaluating. I am not going to comment, Reggie, on how many or which ones are deep into diligence, et cetera. I'm going to come back to there are a set of core criteria that we look at for any deal that we're going to do that align well to the framework that Dave used to drive nearly 100 acquisitions during his time at Honeywell. Those same criteria are the core criteria we're going to use here. And we're going to be very selective. We're trying to find the next CompoSecure, a market leader, great company that is undervalued and do an accretive deal for our shareholders.

And to the second part of the question, I'm not going to comment deeply, as you said when you asked the question on the valuation there. The business, as I tried to explain, is pretty straight-forward in terms of the management fee paid from Compo less the expenses there. The point that we've made over time, Reggie, is that the goal is that the management fee will grow as we grow EBITDA, as we acquire new companies, the goal would be to see material growth in our EBITDA, therefore, the management fee while keeping costs relatively flattish there driving huge operational leverage in that business. And we think that makes it quite an attractive investment opportunity. I'm not going to comment specifically on the valuation.

Our next question is from Jacob Stephan with Lake Street Capital Markets.

Great quarter, guys. Just wanted to touch on a couple of things. So we've seen a lot of these kind of relaunch programs with the Chase Sapphire Reserve and I think Amex recently did one last year. But what -- I guess, what does the pipeline look for kind of relaunches of existing metal card offerings out there? And maybe if you could kind of help us think through what the new card program pipeline looks like?

When we look forward, Jacob, we are -- and we commented today, we're very pleased with what we're seeing evolve in the premium card market in terms of banks across the spectrum that continue to compete for customers in this segment. We've also seen the cards move from high net worth to mass affluent and into mass market. That's the point that we are making around 4 billion payment cards issued, we think, on an annual basis, we're still less than 1%, providing that opportunity that we described. So coming back to the core of your question, we like that competition for this segment of customers. We think it's healthy for our business using premium cards as part of a value proposition that they're delivering for their customers. We think the market is finding it compelling.

Yes, that is what we see driving the growth that we're seeing right now in the business, and we believe will drive our future years' growth. And you heard me comment on that and you heard Dave comment on that in terms of our outlook and conviction on this business where we are and the opportunity that we still see in front of us, which we think is quite material.

Got it. Very helpful. And maybe if I could just kind of ask more of a crypto-focused question. Obviously, there's been significant kind of legislation proposed and you've kind of got the rise of stablecoins. But is there any other driving factors between several other of the major exchanges kind of rolling out their card offerings or upgrading existing?

Jacob, we think that's very exciting opportunities. So to see folks like Coinbase, Robinhood, Gemini, Crypto.com making the kind of strides that they are at the intersection in our view of crypto and payments, we think this is a very exciting time. Overlay the recent changes with stablecoins and the work that our team has done to basically build the capabilities to help spending of stablecoins from cold storage at point of sale over traditional rails or direct wallet to wallet. We're very excited about how we're positioned for the opportunities ahead there.

And we have a follow-up from Moshe Orenbuch with TD Cowen.

Okay. And maybe you did mention that Arculus contribution was positive. So kind of just following up, what's the path there? Are you investing more and the revenue is growing? Could you -- is there a way to kind of expand on that in the context of your disclosure?

Yes. I'd say generally, it's being driven by revenue growing by far the #1 driver of what's driving that positive contribution in the business. I'd say our spending or investment is fairly flat to slightly increasing on the things like the sales side, go-to-market, Moshe. But overall, it's revenue growth that is driving the day there.

Thank you so much. And ladies and gentlemen, this concludes our Q&A session and conference for today. Thank you all for participating, and you may now disconnect.